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FORTY  YEARS  OF  AMERICAN 
FINANCE 


A  SHORT  FINANCIAL  HISTORY  OF  THE 

GOVERNMENT  AND  PEOPLE  OF 

THE  UNITED  STATES  SINCE 

THE  CIVIL  WAR 

1865-1907 


BY 
ALEXANDER    DANA    NOYES 


Being  the  Second  and  Extended  Edition  of 
*' Thirty   Years  of  American    Finance'^ 


G.  P.  PUTNAM'S  SONS 
NEW  YORK  AND  LONDON 
TTbe   fcnfcfiecDocIter  prees 


COPTUOHT,  1898 

BY 

C  P.  PUTNAM'S  SONS 


Copyright,  1909 

BY 

G.  P.  PUTNAM'S  SONS 


ttbe  fmfchcrbociMt  prcw.  lUw  TDtk 


PREFACE 

SINCE  this  book  was  first  published  in  1898,  under 
the  title  Thirty  Years  of  American  Finance,  I  have 
been  repeatedly  urged  to  bring  the  history  up  to  date, 
in  order  to  cover  the  remarkable  financial  episodes  of 
1 901  and  afterward.  The  undertaking  did  not  then 
Beem  feasible,  because  the  movement  of  events  in  one 
direction  was  so  swift  that,  so  to  speak,  no  stopping- 
place  was  obtainable  for  a  broad  and  comprehensive 
survey  of  the  period.  Such  a  stopping-place  seems 
to  have  been  provided  by  the  panic  of  1907.  I  have 
therefore  undertaken  to  treat  the  ten  years  in  American 
finance,  which  followed  1897,  as  I  had  already  treated 
the  thirty  years  preceding. 

I  take  this  opportunity  to  thank  the  numerous 
educators,  public  men,  and  others  who  have  written 
to  me  since  the  publication  of  the  first  edition,  for 
their  interest  in,  and  appreciation  of,  what  this  book 
has  endeavored  to  accomplish.  Their  cordial  recep- 
tion of  a  work  which  was  not  an  economic  treatise, 
but,  as  far  as  its  author  possessed  the  power  of  making 
it  so,  a  fair  and  unbiassed  history  of  our  own  times, 
has  greatly  encouraged  me  in  taking  up  a  period  so 

iii 


IV  Preface 

surrounded  by  economic  controversy,  political  preju- 
dice, and  confusion  of  financial  ideas,  as  the  decade 
from  1897  to  1907,  - 

It  is  gratifying  to  be  able  to  say  that  the  facts  and 
conclusions  regarding  the  thirty  years  prior  to  1897, 
set  forth  eleven  years  ago  in  the  first  edition  of  this 
work,  have  stood  the  test  of  criticism.  I  am  making, 
in  this  edition,  no  important  revision  or  alteration  of 
either.  One  historical  assertion,  however,  I  have 
found  it  necessary  to  modify.  In  the  original  edition, 
on  page  27,  I  spoke  of  John  Sherman  as  "the  author 
of  the  Resumption  Act."  First-hand  evidence,  com- 
municated to  me  after  publication  of  the  book,  and  not, 
I  believe,  made  public  up  to  the  present  time,  has 
convinced  me  that  Mr.  Sherman,  although  it  was  he 
who  reported  the  Resumption  bill  from  the  com- 
mittee, was  not  the  author  of  the  Act;  that  it  was  drawn 
by  other  hands  than  his;  that  its  faults  were  due  to  an 
effort  to  avoid  political  obstacles,  and  that  the  law 
was  passed  exactly  as  it  was  originally  constructed. 
I  have  therefore  altered  the  reference  to  Mr.  Sherman. 

Another  point,  to  which  some  of  the  Treasury  officers 
of  the  second  Cleveland  Administration  have  lately 
called  my  attention,  is  the  assertion,  on  page  249,  that 
the  undertaking  of  the  bankers'  syndicate  of  1895, 
to  protect  the  Treasury  gold  reserve,  had  "broken 
down, "  and  that  "  apparently,  the  syndicate  experiment 
had  failed."  Against  this  view  of  the  matter,  it  has 
been  urged  that,  since  the  syndicate's  contract  was  tech- 
nically closed  in  June,  by  delivery  of  the  stipulated  sums 


Preface  v 

of  gold  to  the  Treasury,  the  undertaking  could  not  be 
said  to  have  broken  down.  In  so  far  as  regards  per- 
formance of  the  stipulated  deliveries,  this  inference  is 
correct;  the  bankers  had  even  managed  to  "protect 
the  Treasury  against  the  withdrawal  of  gold  pending 
the  complete  performance  of  this  contract."  The 
belief  of  the  day  was,  however,  that,  as  a  result  of  the 
protective  measures,  the  Treasury  would  be  put 
permanently  on  its  feet  and  the  exhausting  drain  of 
gold  ended.  In  this  respect,  the  experiment  was  a 
failure;  the  subsequent  loss  of  gold  was  probably 
greater  because  of  the  artificial  damming  up  of  gold 
exports  in  the  spring.  I  therefore  believe  it  to  be 
strictly  correct,  as  a  matter  of  economic  history,  to  say 
that  the  "undertaking  to  protect  the  Treasury  had 
broken  down,"  and  I  have  not  altered  the  passage. 

My  treatment  of  the  financial  history  of  1901  and 
1907  is  largely  based  on  my  own  discussion  of  the  two 
episodes,  in  articles  published  in  recent  years  by  the 
Qtiarterly  Journal  of  Economics  of  Harvard  University. 
I  wish  here  to  acknowledge  the  courtesy  of  the  editors 
in  permitting  free  use  of  the  matter  contained  in  those 
articles,  but  at  the  same  time  to  point  out  that  in  sur- 
veying the  period  as  a  whole,  as  this  book  endeavors 
to  do,  the  narrative  has  of  necessity  been  almost  com- 
pletely re-written. 

A.  D.  N. 

New  York,  March,  igop. 


CONTENTS. 

i. — ^The  Inflation  Period i 

Reasons  for  writing  the  history  of  the  past  thirty  years — 
Distinctive  character  of  the  epoch — Industrial  expansion 
of  the  United  States  after  the  war — Opening  up  of  the 
West — Rise  of  the  American  grain  trade — Origin  of  the 
nation's  currency  problems — The  Legal-Tender  Act — Pur- 
poses of  its  authors — Congress  resolves  to  retire  the  legal 
tenders — The  Contraction  Law  of  1866 — Hugh  McCuUoch 
and  the  anti-contractionists — Congress  revokes  the  Contrac- 
tion Law — The  Presidential  campaign  of  1868— The  repu- 
diation plan  and  the  Public-Credit  Act  of  1869— Inflation 
at  its  worst — The  panic  of  1873 — Defeat  of  the  Administra- 
tion party — Congress  passes  the  Resumption  Act. 


II. — The  Struggle  for  Resumption     .        .        .     a3 

Character  of  the  Resumption  Act — Its  large  grant  of  power 
to  the  Executive — Its  vague  provisions — Problems  of  its 
administration — The  question  of  a  gold  reserve — John  Sher- 
man in  the  Treasury — His  career  as  legislator  and  adminis- 
trator— His  skill  in  financial  negotiation — His  relations 
with  the  banks — Congress  threatens  the  Resumption  Act — 
It  passes  the  Silver-coinage  Law — Declares  Government 
bonds  payable  in  silver — Sectional  breach  in  the  Adminis- 
tration party — Attitude  of  President  Hayes — The  elections 
of  1878 — Gains  of  the  Administration — Final  preparations 
for  resumption. 

vii 


viii  Contents. 

PAom 

III. — Resumption  of  Specie  Payments         .        .48 

Doubts  over  the  maintenance  of  resumption — The;,  com- 
pulsory re-issue  of  redeemed  notes — Secretary  Sherman's 
equivocal  attitude — Unfavorable  trade  conditions  of  the  re- 
sumption year — The  rise  of  foreign  exchange — Gold  taken 
from  the  Treasury  for  export — The  grain-market  situation — 
Harvest  failure  in  Europe — Enormous  American  exports — 
Trade  revival  and  import  of  gold — The  return  of  prosper- 
ity— Development  of  the  interior — The  markets  of  1880— 
Jay  Gould  and  the  railway  speculation — Great  activity  in 
trade — Administration  victory  of  1879 — The  election  of 
1880 — Hayes  and  Sherman  on  the  legal  tenders. 

IV. — The  Silver  Problem     .        .        .        .        -73 

Change  in  Secretary  Sherman's  views — His  prediction  of  a 
silver  standard — The  silver  dollars  rejected  from  circula- 
tion— The  New  York  Clearing-House  excludes  silver  from 
its  settlements — Congress  prohibits  national  banks  from 
joining  in  such  exclusion — Sherman  succeeds  in  circulating^ 
silver  certificates — The  culmination  of  trade  activity — Har- 
vest failure  of  188 1 — Export  of  gold  begins — The  reaction 
of  1882 — Fall  in  prices — The  surplus  revenue — Tariff  re- 
duction urged  by  President  Arthur — Extravagance  of  Con- 
gress— Veto  of  the  River  and  Harbor  Bill — The  elections 
of  1882 — Severe  defeat  of  the  Republican  party — The 
Tariff  Act  of  1883 — Reduction  of  internal  revenue — Re- 
newed trouble  with  the  silver  currency — The  panic  of 
1884 — Its  peculiar  features — Its  brief  duration — The  low 
grain  prices  of  1884 — Election  of  President  Cleveland- 
Discouraging  Treasury  outlook. 

V. — The  Surplus  Revenue  of  1888      .        .        .  104 

Solving  the  silver-coinage  problem — Gold  obtained  from 
the  banks — Pushing  the  silver  into  circulation — Contrac- 
tion of  the  bank-note  currency — Rise  of  the  public  revenue 
—Five  years  of  heavy  importations — The  active  markets  of 
1888 — Large  railway  construction — The  period  of  labor 


Contents,  ix 


disputes — The  labor  movement  in  politics — Rise  of-  the 
industrial  trusts — Europe  buys  American  securities — Eng- 
land's search  for  an  export  trade — The  Treasury  surplus 
after  1886 — Difficulty  in  releasing  the  Government's  accumu- 
lations— Public  deposits  with  the  banks — Congress  refuses 
to  reduce  the  revenue — Bond  redemption  at  heavy  pre- 
miums— The  Treasury  and  the  currency. 

VI. — The  Two  Laws  of  1890         ....  127 

The  Presidential  campaign  of  1888 — Declaration  of  the  Re- 
publican party — Of  the  Democratic  party — Two  opposing 
plans  to  reduce  the  surplus — Election  of  Mr.  Harrison — 
The  party's  policy — The  President's  Message — His  advice 
on  appropriations — Congress  raises  the  tariff  rates — In- 
creases appropriations — Heavy  fall  in  revenue — Approach 
of  a  deficit — The  Silver-Purchase  Act — Its  origin  —  Its 
hasty  preparation — William  Windom  in  the  Treasury — '• 
His  previous  official  career — His  faults  as  an  economist — 
His  purpose  in  framing  the  Silver- Purchase  Bill — His  argu- 
ment in  its  favor — Nature  of  his  plan — Confusion  of  its  de- 
tails— His  views  on  currency  contraction — On  silver  coinage 
—On  the  price  of  silver — His  mistakes  of  judgment — 
House  of  Representatives  modifies  the  bill — Senate  votes 
for  free  coinage — The  compromise  committee — Purpose  of 
their  measure — Opinions  of  free-coinage  Senators — Gold 
redemption  asserted — Passage  of  the  law. 

VII, — The  Expulsion  of  Gold      ....  153 

The  Silver-Purchase  Act  and  the  silver  market — The  law 
fails  of  its  purpose — Fall  in  silver  bullion — Altered  views 
of  Secretary  Windom — Of  President  Harrison — The  mar- 
kets of  1890 — Violent  expansion  of  the  currency — The  for- 
eign speculation — Deficient  wheat  crops  and  high  grain 
prices — London  and  its  Argentine  venture — Failure  of 
Baring  Brothers — The  panic  of  1890 — Recall  of  English 
capital — Continued  increase  in  United  States  currency — 
Gold  export  begins  in  quantity  — •  Various  explanations 
offered — The  true  cause — Its  menace  to  the  Treasury— 


^  Contents. 

fAIGM 

Heavy  gold  payments  by  the  Government — Fall  of  the  gold 
reserve — The  harvest  of  1891 — Its  remarkable  influences — 
Situation  changes  for  the  worse — The  "hundred-million 
reserve" — Its  history — Its  legislative  authority — Displace- 
ment of  gold  with  legal  tenders — Gold  payments  stopped 
by  the  New  York  banks — By  the  Treasury — The  gold  ex- 
porters 4ind  the  banks — They  fail  to  get  gold  in  New  York 
— Presentation  of  legal  tenders  for  redemption — Why  it 
was  unavoidable — The  elections  of  1890 — Sweeping  oppo- 
sition victory — The  Fifty-second  Congress — It  attempts  to 
pass  a  Free-coinage  Law — To  change  the  tariff — It  increases 
expenditures — The  election  of  1892 — The  curious  political 
platforms — The  Democrats  and  silver — Breach  in  the  party 
— Rise  of  the  Populist  party — Mr.  Cleveland  re-elected 
President. 

VIII.— The  Panic  of  1893 182 

Last  days  of  the  Harrison  Treasury  administration — Secre- 
tary Foster  and  the  banks — Problems  of  the  new  Admin- 
istration— Secretary  Carlisle  and  the  gold  reserve — The 
hundred-million  fund  impaired — Rumors  of  silver  redemp- 
tion— Their  effect  on  the  markets — The  Secretary's  declar- 
ation— The  President  pledges  gold  payments — Precarious 
nature  of  the  situation — Outbreak  of  panic — The  corpora- 
tion failures — The  run  on  the  country  banks — Heavy  strain 
on  the  New  York  institutions — Issue  of  clearing-house  cer- 
tificates— Cash  payments  suspended  by  numerous  city  banks 
— The  premium  on  currency — Its  good  effects — Its  evil 
effects — Heavy  gold  imports — Gold  the  sole  medium  of 
exchange — Extra  session  of  Congress — The  Repeal  Bill — 
Attitude  of  the  Republicans — Of  the  Democrats — The 
struggle  in  the  Senate — The  Silver-Purchase  Law  repealed 
— The  effect  on  the  silver  market — On  general  trade — End 
of  the  panic — Record  of  failures  in  1893 — Industrial  de- 
pression returns — Great  increase  of  the  money  supply — The 
Treasury  and  the  gold  imports — Gold  reserve  paid  out  to 
meet  the  deficit — Decrease  in  merchandise  importations— 
In  revenue — Attitude  of  Secretary  Carlisle. 


Contents.  xl 


PAGH 


IX. — ^The  Government  Loans  and  the  Tariff 

OF  1894 207 

Secretary  Carlisle's  embarrassments — His  appeal  to  Con- 
gress— Critical  condition  of  the  Treasury — Congress  refuses 
help — The  first  bond-issue  announced — Attacks  on  the 
Treasury  in  Congress — The  courts  sustain  the  Administra- 
tion— Difficulties  in  floating  the  loan — Mr.  Carlisle's  policy 
— The  banks  finally  subscribe — Treasury  gold  withdrawn 
for  subscription  purposes — Questionable  character  of  the 
action — Gold  exports  resumed — Recall  of  foreign  capital — 
Discouraging  commercial  outlook — The  railway  insolven- 
cies— The  labor  uprising — "Coxey's  army"  and  the  Rail- 
way Union  strike — Failure  of  the  corn  crop — Fall  in  the 
price  of  wheat — Tariff  legislation  begun — Necessity  for 
such  legislation — The  question  of  a  deficit — Mistakes  of 
the  framers  of  the  Wilson  Act — Motives  of  the  House  of 
Representatives — Of  the  Senate — The  breach  with  the 
President — Blunders  in  the  revenue  estimates — The  income 
tax  before  the  Supreme  Court — Declared  unconstitutional 
— Grounds  for  the  decision — Probable  yield  of  the  tax 
overestimated — Congress  votes  to  coin  the  seigniorage — 
The  President's  veto — Continued  fall  in  the  gold  reserve — 
The  second  bond-issue  —  The  "endless  chain" — Heavy 
gold  exports — Crisis  in  the  Treasury. 


X. — The  Bond  Syndicate  Operation  .        .        .  234 

International  bankers  take  the  loan  of  1895 — Their  remark- 
able contract — Its  harsh  terms — Its  pledge  to  stop  gold 
withdrawals — Exasperation  in  Congress — The  President 
defends  the  contract — Nature  of  the  syndicate  operation- 
Its  magnitude — All  the  sterling  bankers  unite  to  protect 
the  Treasury — Skepticism  of  European  critics — Progress  of 
the  operation — The  gold  reserve  restored — Change  in  the 
trade  situation — Rapid  advance  in  prices — Foreign  buying 
of  American  securities — Its  connection  with  the  London 
mining  craze — Decline  in  foreign  exchange — Bad  results  of 
the  American  speculation — Balance  of  foreign  trade  re- 


xii  Contents. 


PACK 

versed — The  wheat  market  blockaded — Europe  sells  back 
its  American  securities — Defects  in  the  syndicate  plan  come 
to  light — The  redundant  money  supply  increased — Artificial 
rates  for  exchange — The  syndicate  loses  control  of  the  ster- 
ling market — Gold  exports  begin  .again — Situation  at  the 
close  of  1895 — The  industrial  outlook — The  political  out- 
look— The  change  in  currency  conditions — Plans  for  a  new 
loan — The  $100,000,000  bond  sale — Its  curious  influence 
on  the  money  market — Legal  tenders  at  a  premium — Suc- 
cess of  the  loan  of  1896 — Great  change  in  the  commercial 
situation — Conclusion. 

XI. — The  "Industrial  Boom"    ....  257 

A  new  chapter  in  world  finance — Increase  of  gold  output 
and  rise  in  commodity  prices — Its  effect  on  the  United 
States — The  free-coinage  campaign  of  1896 — Influences 
which  defeated  Bryan — Markets  and  the  gold-standard 
victory — Slowness  of  industrial  recovery — Illusions  regard- 
ing the  immediate  effect  of  the  electoral  vote — The  Ameri- 
can trade  in  the  early  months  of  1897 — The  Dingley 
tariff  bill — Its  effect  on  the  revenues — On  prosperity 
— Europe's  wheat  famine  and  the  great  American  crop 
— Revival  of  business — Import  of  foreign  gold  and  final 
establishment  of  the  gold  standard  of  currency  —  The 
"  American  invasion  "  of  industrial  Europe — Reason  for 
Count  Goluchowski's  warning — Unprecedented  expansion 
of  our  export  trade — Reconstruction  of  the  insolvent  rail- 
way systems — How  it  was  accomplished — Its  remarkable 
results — The  Spanish  War  of  1S98  and  the  financial  mar- 
kets— The  *'  Leiter  corner  "  in  wheat — Outbreak  of  the 
Transvaal  War — Cost  of  the  conflict — England's  financial 
situation — America  a  lender  on  the  European  markets — 
Continuous  growth  of  the  ' '  foreign  trade  balance  " — Ex- 
traordinary situation  in  this  country  at  the  close  of  1900. 

XII. — The  Speculative  Mania  of  1901        .        .  284 

Events  which  brought  about  the  public's  craze — American 
investors  and  the  market   for  securities — The    company 


Contents,  xiil 


amalgamations  of  1899 — Phases  of  the  new  trust  move- 
ment— Promoters  and  stock-watering — Attitude  of  the 
investing  public — The  second  Bryan  campaign — Its  shift- 
ing of  issues — Political  chaos  in  the  Democratic  party  of 
1900 — Influence  of  prosperity  on  the  vote — Outburst  of 
speculation  after  the  election — The  "  Burlington  & 
Quincy  deal " — Expedients  of  the  great  promoters — Col- 
lateral trust  bonds  and  '*  holding  companies  " — Mr. 
Morgan's  plan  for  the  steel  trade — Efforts  to  buy  out 
Andrew  Carnegie — His  history,  and  the  price  demanded 
by  him — The  billion-dollar  Steel  Trust  organized — Ex- 
pedients by  which  the  stock  was  floated — Craze  for  specu- 
lation seizes  the  general  public — Extraordinary  Wall 
Street  market  of  April,  igoi — The  Shipping  Trust — Atti- 
tude of  foreign  steamship  lines — Of  the  English  public — 
The  "  Northern  Pacific  corner" — Morgan  and  Harriman 
in  financial  collision — Northern  Pacific  stock  goes  to 
$1000  per  share — The  "May  9th  panic'' — Temporary 
crisis  on  New  York  Stock  Exchange — Crop  failure  and 
industrial  reaction — Insolvencies  of  1903  among  the  new 
industrial  trusts — Steel  Trust's  market  valuation  reduced 
one  half — The  "  rich  men's  panic" — Roosevelt's  sweep- 
ing pluralities  of  1904. 

XIIL — World-wide  Rise  in  Prices      .        .        ,312 

Place  of  1903  in  financial  history — Reasons  for  the  coun- 
try's rapid  recovery  from  depression — Influence  of  ex- 
panding gold  production — The  Transvaal  mines  after  the 
war — Extraordinary  rise  in  cost  of  living  between  1904 
and  1907 — Part  played  by  the  trusts — By  farmers'  combi- 
nations— By  labor  unions — Outbreak  of  land  speculation 
throughout  the  United  States — The  Russo-Japanese  war 
— Cost  of  the  contest — Absorption  of  the  capital  of  neu- 
tral states — Japan  places  its  bonds  in  this  country — Finan- 
cial and  industrial  activity  stimulated  throughout  the 
world — New  securities  on  the  English  and  German  mar- 
kets— Rapid  expansion  of  the  world's  iron  production — 
Speculative  excesses  of  1905  and  1906  in  Germany — In 


XIV  Contents. 

PAOI 

Egypt — In  Japan — In  South  America — In  the  United 
States — The  Wall  Street  capitalists  and  the  Stock  Ex- 
change— Part  played  by  American  banks  in  the  specula- 
tion— Position  of  the  general  public — World-wide  tension 
in  money  markets — American  bankers  raise  great  sums  in 
Europe — The  New  York  money  rate  at  125  per  cent. — 
Predictions  of  a  coming  financial  panic — Leroy-Beau- 
lieu's  analysis  of  the  situation. 

XIV. — Social  and  Political  Results       .        .  331 

Conditions  of  American  society  in  1906 — The  speculative 
tendencies  of  the  day — Extravagance  of  living — Hard- 
ship caused  by  the  rise  in  prices  of  necessities — The  Pub- 
lic and  the  Trusts — Attitude  of  the  great  capitalists — 
Their  determination  to  intrench  themselves  in  power — 
High-handed  action  in  corporation  affairs — The  Steel 
Trust's  stock  conversion — The  Metropolitan  lease — Mr, 
Morgan  and  Mr.  Harriman  on  the  new  finance — Harri- 
man's  public  declarations  as  to  his  purposes  of  railway  ac- 
quisition— Question  if  one  group  of  men  could  get  control 
of  all  the  railways — The  life  insurance  scandal — Equita- 
ble Life  investigated  by  its  own  committee — By  the  New 
York  Legislature — What  was  discovered  and  how  the 
public  received  it — Use  of  insurance  trust  funds  in  Wall 
Street  promoting  schemes — Extraordinary  testimony  in 
the  case — The  sale  of  the  Equitable  Life — Roosevelt  ad- 
ministration and  the  railways — Assurances  and  warnings 
on  Roosevelt's  accession  to  the  Presidency — The  Anti- 
Trust  Law  of  1890 — How  it  came  to  be  applied  to  rail-  * 
ways — The  Northern  Securities  suit — Merger  dissolved 
by  Supreme  Court — Effect  of  the  decision — Standard  Oil's 
$29,000,000  fine — The  Hepburn  Railway  Rate  Law — 
Theory  of  President  Roosevelt  as  a  cause  of  financial 
panic. 

XV. — The  Panic  of  1907 355 

Europe's  attitude  towards  the  United  States  on  the  eve 
of  panic — Enormous  foreign  loans  to  Wall  Street — Use  of 


Contents.  xv 

PAOB 

Union  Pacific's  surplus  and  credit  to  buy  stocks — Excited 
speculation  stirred  up  by  Union  Pacific — Strain  on  the 
world's  money  markets  and  recall  of  Europe's  capital — Col- 
lapse of  the  Wall  Street  speculation — The  Bank  of  Eng- 
land's warning — Railways  caught  in  the  money  market- 
James  J.  Hill's  prediction — Heavy  borrowing  on  short 
notes — Panic  breaks  out  on  foreign  markets — Financial 
crisis  in  Egypt — In  Japan — In  Hamburg — In  Chili — In 
Holland  and  Denmark — Beginning  of  trouble  at  New  York 
— Why  the  market  had  refused  to  recognize  the  signs  of 
panic — The  symptoms  of  the  crisis — "Chain  banking" — 
Mercantile  Bank's  embarrassment — The  trust  companies — 
The  law  governing  them,  and  their  practices  regarding  de- 
posits, investments,  and  reserves — Action  of  New  York 
Clearing  House  in  1903 — The  sequel  in  1907 — The  Knick- 
erbocker failure — A  run  of  depositors  without  a  precedent 
— New  York  in  panic — Treasury  endeavors  to  help — Enor« 
mous  cash  withdrawals — Credit  crisis  on  the  Stock  Ex- 
change— Clearing-house  loan  certificates,  hoarding  of  cash, 
and  emergency  currency — Partial  suspension  of  credit 
throughout  the  United  States — The  premium  on  currency 
and  the  import  of  gold  from  Europe — Futile  experiment  by 
the  government — After-effects  of  the  1907  panic — The  com- 
mercial failures  and  the  industrial  depression — Illusions  of 
1908— The  movement  of  prices  in  1909 — Conclusion. 

Index 381 


FORTY  YEARS  OF  AMERICAN 
FINANCE 


CHAPTER   I 

THE  INFLATION  PERIOD 

A  GLANCE  over  the  financial  history  of  the 
United  States,  from  the  close  of  the  Civil  War  to 
the  panic  of  1907,  will  detect  three  separate  periods. 
The  first,  which  began  in  the  currency  depreciation 
era  of  the  sixties,  ended  with  specie  resumption  in 
1879.  T^®  second  continued  up  to,  and  a  little 
beyond,  the  panic  of  1893.  The  third  had  its  begin- 
ning in  the  striking  economic  phenomena  of  the  last 
few  years  of  the  nineteenth  century. 

It  is  my  purpose  to  review  the  history  and  ex- 
amine the  underlying  influences  of  all  three  periods. 
For  dramatic  interest,  neither  of  the  two  earlier 
periods  ranks  with  the  third  and  last ;  yet  the  events 
between  1897  and  1907  cannot  be  fully  understood 
except  by  studying  with  them  the  thirty  years  pre- 
ceding.   It  was  with  the  close  of  the  Civil  War  that 


2  '  American  Finance  [i865 

financial  America  first  became  an  influence  of  great 
importance  in  world-finance ;  it  was  as  a  sequel  to 
the  Civil  War  that  many  of  the  problems  with  which 
the  country  is  still  wrestling — economic,  fiscal,  and 
social — had  their  origin. 

In  these  and  other  respects,  the  forty-year  period 
properly  calls  for  treatment  as  a  whole.  War 
which  has  ravaged  a  continent  during  a  series  of 
years  cannot  be  suddenly  abandoned  without  im- 
mense effect  on  industrial  conditions,  and  the  new 
conditions  will  never  duplicate  those  which  existed 
before  the  war  began.  This  was  the  lesson  which 
Europe  learned  in  1815.  Such  was  the  singular 
combination  of  events  after  the  peace  of  1865,  how- 
ever, that  almost  at  the  moment  when  a  million  citi- 
zens were  turned  from  organized  destruction  to 
pursuit  of  peaceful  industry,  the  avenues  of  Ameri- 
can employment  and  production  were  widened  in  a 
degree  unprecedented  in  the  history  of  trade. 
Within  eight  years  after  Lee's  surrender,  the  railway 
mileage  of  the  United  States  was  literally  doubled. 
Only  a  fraction  of  this  increase  belonged  to  the  trans- 
continental lines  which  linked  the  two  oceans  in 
1869.  Quite  aside  from  the  1800  miles  of  the  Pacific 
Railways,  upwards  of  30,000  miles  of  track  were  laid 
in  the  United  States  between  1865  and  1873.  Four 
noteworthy  economic  developments  accompanied 
this  extension  of  the  transportation  system.  A  fer- 
tile interior  domain,  hitherto  untouched,  was  opened 
up  to  industry.  With  the  rush  of  population  to 
these  Western  districts,  not  only  did  the  disbanded 
army   resume  production   without  industrial  over' 


I8«7]  Rise  of  the  Grain  Trade  3 

crowding  such  as  followed  the  Napoleonic  wars,  but 
provision  was  made  for  three  or  four  hundred  thou- 
sand immigrants  annually.  European  capital  in 
enormous  volume  was  drawn  upon  to  provide  the 
means  for  this  development.  Finally,  the  United 
States  rose  from  the  position  of  a  second-  or  third- 
class  commercial  state  to  the  first  rank  among  agri- 
cultural producers  and  exporters.  Each  of  these 
several  phenomena  had  its  special  influence  on  the 
period.  The  new  West,  the  contented  or  discon- 
tented farmer,  the  foreign  investor,  and  the  export 
trade  in  grain,  will  come  into  very  frequent  view 
during  the  progress  of  this  history. 

Not  less  immediately  connected  with  this  opening 
up  and  settlement  of  our  agricultural  West  was  still 
another  phenomenon,  of  peculiar  interest  to  the 
study  of  the  ensuing  period.  The  average  price  of 
grain  had  advanced  with  great  rapidity  during  the 
Civil  War.  In  1867,  the  price  of  wheat,  even  on  the 
Chicago  market,  reached  the  remarkable  level  of 
$2.85  per  bushel;  nor  was  this  price  very  greatly 
above  the  annual  maximum  of  the  period.  In  a 
large  degree,  this  advance  resulted  from  inflation  of 
the  American  currency.  But  the  upward  movement 
was  world-wide;  in  1867  and  1868  the  average  price, 
even  in  England,  was  close  to  the  equivalent  of  two 
dollars  a  bushel.'  That  any  such  abnormal  market 
could  be  maintained  in  the  face  of  the  new  American 
supplies  was  at  least  improbable.  The  area  of 
wheat,  corn,  oats,  rye,  and  barley  in  the  United 
States  rose  from  64,418,518  acres  in  1867  to  86,287,- 
'  Sauerbeck's  tables  of  English  prices. 


4  American  Finance  ti872 

648  in  1875,  and  to  100,283, 160  in  1878.'  The  yield 
of  these  five  crops  increased  from  1,320,236,000 
bushels  in  1866  to  2,290,008,000  in  1878,  the  annua) 
wheat  crop  more  than  doubling  in  magnitude^* 
The  increase  in  cereal  production  was  twice  as  rapid 
as  the  country's  increase  in  population ;  the  United 
States  became  therefore  the  leading  figure  in  the 
world's  export  markets ;  and  this  was  certain  to  have 
important  influence  oh  prices. 

But  prices  did  not  yield  at  once.  A  series  of  de- 
ficient harvests,  after  1870,  accompanied  by  the 
suspended  production  of  the  Franco-Prussian  war, 
abruptly  checked  the  downward  movement.  After 
1872,  however,  the  new  supplies  made  their  influence 
positively  felt.  For  in  this  increase  of  agricultural 
production,  the  United  States  was  now  not  alone. 
Precisely  as  1865  marked  the  end  of  war  on  the  North 
American  continent,  so  the  Treaty  of  Paris  in  187 1 
brought  to  a  close  the  seventeen  years  of  almost  un- 
interrupted warfare  among  European  states.  As  in 
America,  so  in  Europe,  production  received  imme- 
diate stimulus.  While  American  capital  was  opening 
up  the  Mississippi  Valley,  European  capital  was 
similarly  busy  along  the  fertile  river-basins  of  the 
Dnieper  and  the  Danube.  The  Russian  railway 
system  grew  during  this  period  from  something  like 
2000  miles  to  upwards  of  13,000.*  In  Austro-Hun- 
gary,  the  percentage  of  increase  was  almost  equally 
large.    All  of  these  new  transportation  lines,  like  our 

'  Annual  Reports,  U.  S.  Bureau  of  Agriculture. 

»  IHd. 

•  Official  Russian  Report  on  Railways,  1878, 


1878]  The  Fall  in  Prices  5 

own  new  Granger  railways,  were  at  once  engaged  in 
carrying  to  the  seaboard  supplies  of  grain  which  never 
before  had  reached  an  export  market.  Commercial 
estimates  placed  the  total  wheat  crop  of  1875,  in  the 
world's  ten  chief  producing  states,  at  1,501,000,000 
bushels.  In  1878,  the  same  ten  states  produced 
1,763,000,000,  and  another  increase,  equally  large, 
was  made  within  the  next  four  years.'  The  problem 
of  an  earlier  generation  had  been  how  to  feed  the 
constantly  increasing  population  ;  a  wholly  new 
problem  was  presently  to  arise,  based  on  the  question 
how  to  find  a  ready  and  profitable  market  for  the 
year's  output  of  breadstuffs.  Prices,  in  short,  which 
rose  almost  continuously  throughout  the  world 
during  the  period  of  slack  production  from  1858  to 
1873,  receded  almost  as  continuously  in  the  ensuing 
generation.  Nowhere  was  this  phenomenon  destined 
to  have  more  immediate  importance,  economically, 
socially,  and  politically,  than  in  the  United  States. 

In  my  examination  of  the  thirty  years  after  1865, 
I  shall  endeavor  to  give  due  attention  to  the  in- 
fluence of  these  grain  markets  on  national  politics 
and  finance.  The  opinion  is  more  or  less  widely 
held  that  the  decline  in  prices,  notably  of  grain,  has 
resulted  from  legislation  on  the  currency.  Without 
for  the  present  arguing  that  proposition,  it  may  be 
affirmed  with  entire  safety  that  a  good  share  of  the 
period's  currency  legislation  has  resulted  from  the 
decline  in  the  price  of  grain.  The  fall  in  wheat  has 
been  the  typical  argument  for  arbitrary  increase  of 
the  silver  or  paper  currency  in  almost  every  Con- 

*  Liverpool  Corn  Trade  News  estimates. 


6  American  Finance  [i865 

gressional  debate  since  1872.  What  is  perhaps  even 
more  significant,  the  division  in  almost  every  Con- 
gressional vote  upon  these  subjects  has  been,  not 
political  but  geographical  —  the  commercial  East 
against  the  agricultural  West. 

The  questions  of  silver  coinage  and  of  Government 
issues  of  paper  currency  have  had  as  profound  an 
influence  on  public  finances,  during  the  last  thirty 
years,  as  the  question  of  agricultural  prices  and  pro- 
duction has  had  on  private  trade.  Both  of  these 
currency  problems,  in  their  later  form,  have  arisen 
since  the  Civil  War.  There  had  indeed  been  silver 
coinage  and  suspension  of  silver  coinage  long  before 
1865;  but  there  had  been  neither  a  "  silver  ques- 
tion ' '  nor  a  * '  silver  party. ' '  The  legal-tender  notes 
had  been  introduced  and  brought  to  their  maximum 
issue  before  the  return  of  peace,  but  there  had  never 
been  a  "  greenback  party,"  or  a  demand  in  any  re- 
sponsible quarter  for  a  permanent  currency  of  Gov- 
ernment paper. 

During  the  eighty-four  years  after  Washington's 
inauguration,  only  a  trifle  over  eight  million  silver 
dollars  in  all  had  been  coined  at  the  mints  of  the 
United  States;'  when,  therefore,  in  the  statute  re- 
vision of  1873  the  silver  dollar  was  dropped  from  the 
nation's  coinage  list,  the  action  was  received  with 
indifference  by  the  entire  community.  The  ques- 
tion of  "  free  coinage  "  was  not  so  much  as  named 
in  any  Presidential  platform,  even  as  late  as  1876. 
The  sudden  appearance  of  the  "  silver  problem," 
only  one  year  after  the  1876  election,  resulted  very 

•  U.  S.  Mint  Report,  1893,  p.  aSa. 


1865]  The  Currency  Problems  7 

largely  from  the  decline  in  agricultural  prices.  It 
resulted  also,  beyond  any  reasonable  question,  from 
the  fact  that  silver  production  in  the  United  States, 
reckoned  prior  to  1861  at  less  than  a  million  dollars 
annually,  and  in  1869  at  only  twelve  million  dollars, 
had  risen  by  1878  to  no  less  an  annual  sum  than 
$45,200,0(X>.  It  will  be  found  that  even  in  1880  a 
conservative  President  was  reciting,  not  without  ap- 
proval, the  maxim  that  the  United  States,  producing 
"  more  silver  than  any  other  country,"  was"  directly 
interested  in  maintaining  it  as  one  of  the  two  pre- 
cious metals."  ' 

If  silver  coinage  was  not  a  political  issue  at  the 
close  of  the  Civil  War,  the  policy  of  a  permanent 
currency  of  Government  legal-tender  paper  was 
equally  unknown.  Upwards  of  four  hundred  mil- 
lion notes  of  the  United  States  were,  it  is  true,  in 
circulation  at  the  return  of  peace.  There  were 
doubtless  many  individuals  who  approved  the  con- 
tinuance of  exactly  this  form  of  currency.  But  no 
such  proposition  had  been  advanced  by  any  public 
man  of  influence  or  by  any  political  organization. 
The  "  greenback  party,"  like  the  "  silver  party," 
was  distinctly  a  product  of  hard  times.  The  Specie- 
Resumption  Act  was  a  compromise  with  the  extrem- 
ists of  the  fiat-money  school,  as  the  compulsory 
Silver-Coinage  Act  of  1878  was  a  compromise  with 
the  extreme  bimetallists.  Each  created  a  currency 
system  never  imagined  by  the  statesmen  of  the  war. 
The  theory  of  the  authors  of  the  Legal-Tender  Act 
Vas   clearly   understood.      They  held  the  issue  of 

'  President  Hayes,  Annual  Message,  Dec.  6,  1880. 


8  American  Finance  [i865 

these  notes  to  be  simply  creation  of  a  Government 
floating  debt,  the  notes  being  endowed  with  special 
privileges  only  in  order  that  they  might  be  floated.' 
That  the  resort  to  legal-tender  powers  was  an  evil 
justified  only  by  extreme  emergency,  and  that  the 
circulation  of  Government  notes  in  any  form  was  a 
purely  temporary  measure,  were  the  unanimous  con- 
victions of  the  statesmen  who  contrived  the  system.' 
The  logical  inference  that  these  Government  notes 
would  be  paid  off  and  cancelled,  as  soon  as  the  war 
deficiency  had  ended,  was  publicly  accepted.  This 
fact  is  clearly  proved  by  the  record.  The  statesmen 
of  the  day  built  up  the  national  banking  system  on 
the  express  theory  that  the  bank  notes  would  pro- 
vide the  requisite  currency  of  the  future,  whereas 
the  Government  notes  would  not.*  No  better  wit- 
ness could  be  had  than  the  Legal-Tender  Act  itself, 
which  provided,  in  its  terms  as  first  submitted  to 
the  Ways  and  Means  Committee,  that  the  notes 
should  be  issued  "  for  temporary  purposes,"  and 
should  moreover  be  convertible  at  the  holder's  option 
into  interest-bearing  bonds. 

Such  was  the  theory  and  purpose  of  the  public 

'  Secretary  Chase,  letter  to  Ways  and  Means  Committee,  January 
ag,  1862  ;  Justice  Bradley,  opinion  in  Legal-Tender  cases,  1871. 

*  Spaulding,  History  of  the  Legal  Tender  Money  Issued  during  the 
Great  Rebellion^  p.  5  ;  W.  P.  Fessenden,  Senate  speech,  February 
12,  1862  ;  Charles  Sumner,  Senate  speech,  February  12,  1862  ;  Sam- 
uel Hooper,  House  of  Representatives  speech,  February  21,  i866 ; 
John  Sherman,  Senate  speech,  March  6,  1876. 

'  President  Lincoln,  Annual  Message,  December  I,  1862  ;  Secre- 
tary Chase,  Treas.  Rep.,  1863,  p.  20  ;  Secretary  Fessenden,  Trtas. 
Rep.,  1864,  p.  24 ;  Spaulding,  Appendix,  p.  16. 


1865]  Theory  of  the  Legal  Tenders  9 

men  through  whom  the  Legal-Tender  Act  was  con- 
structed and  applied.  Nor  is  the  general  position 
of  our  statesmen,  at  the  close  of  the  Civil  War,  any 
more  obscure  than  their  original  position.  The  first 
financial  resolution  adopted  by  Congress,  in  Decem- 
ber, 1865,  was  an  explicit  promise  to  retire  the  legal 
tenders.  The  first  legislation  of  that  Congress  gave 
discretionary  powers  to  the  Secretary  of  the  Treasury 
for  continuous  contraction.  Very  few  legislative 
victories  are  won  without  at  least  a  temporary  popu- 
lar endorsement,  and  the  votes  of  December,  1865, 
and  of  March,  1866,  were  no  exceptions.  But  the 
popular  approval  of  contraction  in  that  year,  excep- 
tion as  it  was  to  all  our  subsequent  legislation,  is 
readily  enough  explained.  Public  opinion,  when 
the  war  had  ended,  was  governed  by  impatience 
with  inflated  prices ;  inflation  far  beyond  the  Euro- 
pean level,  and  properly  ascribed  to  the  condition  of 
the  currency.'  The  cost  of  living  reached  during 
1865  the  highest  point  recorded  in  this  country's 
history.  From  i860  to  1865,  inclusive,  the  average 
of  European  prices  rose  only  4  to  6  per  cent. ;  aver- 
age prices  in  the  United  States  advanced,  in  the  same 
period,  no  less  than  116  per  cent.'  Even  in  1866,  a 
full  year  after  Appomatox,  the  general  average  of 
our  staple  prices  was  more  than  30  per  cent,  above 
the  average  of  1863.  The  erratic  gold  market  of 
1865,  moreover,  forced  as  a  necessary  measure  of 

'  Speeches  of  Morrill  and  Hurlburd,  House  of  Representatives, 
February  21  and  March  15,  1866. 

•  U.  S.  Senate  Report  of  1892,  Part  I.,  p.  91  ;  Sauerbeck's  London 
tables ;  Soetbeer's  Hamburg  tables. 


lO  American  Finance  nees 

precaution  a  large  margin  of  safety  in  the  retail  price 
of  goods,  and  this  bore  heavily  on  ordinary  purchas- 
ers. With  flour  at  $i6  a  barrel,  butter  at  55  cents  a 
pound,  coal  at  $10  a  ton,  and  wages  and  salaries  ad- 
vanced since  i860  hardly  one  third  as  far  as  prices, 
the  demand  for  currency  reform  obtained  ready 
endorsement  from  the  people. 

This  popular  sentiment  was  further  strengthened 
by  the  Administration's  attitude  at  the  opening  of 
Lincoln's  second  term.  Hugh  McCulloch,  then 
Comptroller  of  the  Currency,  and  a  well-known  ad- 
vocate of  retirement  of  legal-tender  notes,  was  ap- 
pointed Secretary  of  the  Treasury.  He  held  this 
oflfice  up  to  the  end  of  President  Johnson's  term. 
Mr.  McCulloch's  first  ofificial  Treasury  report,  dated 
December  4,  1865,  took  positive  ground  for  the 
reduction  of  the  legal-tender  debt.  Although  con- 
ceding that  contraction  ought  to  be  and  must  be 
slow,  he  declared  that  "  there  is  more  danger  to  be 
apprehended  from  the  inability  of  the  Government 
to  reduce  its  circulation  rapidly  enough,  than  from 
a  too  rapid  reduction  of  it."  He  asked,  therefore, 
authority  to  issue  bonds  in  his  discretion,  at  six  per 
cent,  or  less,  "  for  the  purpose  of  retiring  not  only 
the  compound  interest  notes,  but  the  United  States 
notes."* 

The  report  containing  this  outline  of  policy  was, 
like  all  Mr.  McCulloch's  public  documents,  a  state 
paper  of  exceptional  ability;  it  may  be  profitably 
read  to-day  for  its  broad  and  lucid  treatment  of  the 
problem.  Together  with  the  Secretary's  public 
'  Treas.  Rep.,  1865,  pp.  12,  13,  14. 


18661 


The  Contraction  Bill  il 


speeches,  it  had  decided  influence.  Two  weeks  after 
the  publication  of  this  report,  on  December  i8,  1865, 
the  House  of  Representatives  resolved,  by  a  vote  of 
144  to  6, 

"  that  this  house  cordially  concurs  in  the  view  of  the  Secretary  of 
the  Treasury  in  relation  to  the  necessity  of  a  contraction  of  the 
currency,  with  a  view  to  as  early  a  resumption  of  specie  payments 
as  the  business  interests  of  this  country  will  permit ;  and  we  hereby 
pledge  co-operative  action  to  this  end  as  speedily  as  practicable." 

This  resolution  of  1865,  however,  marked  the 
climax  of  the  movement.  Never  thereafter  did  the 
policy  of  retiring  the  legal-tender  notes  even  ap- 
proach success.  The  truth  is,  that  the  inflated 
prices  had  begun  already,  during  the  three  months 
after'  the  resolution  of  December,  to  recede.  This 
was  inevitable,  from  the  very  nature  of  the  previous 
expansion ;  and  it  was  a  welcome  movement  to  con- 
sumers. But  it  necessarily  caused  some  derange- 
ment in  the  plans  of  trade,  and  politicians  began  to 
ask,  when  they  had  to  face  the  fulfilment  of  their 
pledge  through  a  formal  act  of  Congress,  how  the 
contraction  policy  would  be  greeted  by  producers. 
The  bill,  as  originally  introduced,  granted  full 
powers  to  the  Secretary  of  the  Treasury  to  issue  new 
bonds  for  the  retirement  both  of  interest-bearing 
and  of  non-interest-bearing  debt.  In  the  spring  of 
1866  this  measure  was  defeated  in  the  House  of 
Representatives  by  a  vote  of  70  to  64.  Reconsidered 
and  amended  so  as  to  restrict  contraction  of  the  legal 
tenders  to  $10,000,000  in  the  first  six  months  and  to 
$4,000,000  per  month  thereafter,  the  compromise 
measure  did  indeed  pass  the  House  by  83  to  53,  and 


12  American  Finance  [186« 

the  Senate  by  32  to  7.  But  a  victory  thus  won  was 
ominous.  Mr.  McCulloch  himself  declared  the 
amended  act  to  be  awkward  and  ineffective.'  Still 
more  significant  was  the  character  of  opposition  de- 
veloped in  the  course  of  the  debate.  It  had  a  dozen 
varying  grounds  of  argument,  most  of  them  pretty 
certain  to  appeal  to  popular  prejudice  later  on. 
Some  Congressmen  objected  to  the  discretionary 
powers  as  revolutionary,  and,  while  conceding  Mr. 
McCulloch's  ability  and  conservatism,  pointed  out 
that  a  very  different  Treasury  Secretary  might  suc- 
ceed him.*  Some  denounced  the  contraction  policy 
in  itself  as  a  "  double-quick  march  to  bankruptcy  "  * ; 
others,  less  extreme  in  view,  nevertheless  pronounced 
the  notion  of  immediate  resumption  of  specie  pay- 
ments to  be  "  Utopian  in  the  extreme."*  Much 
was  heard  of  the  comfortable  theory  that  if  Congress 
would  "  allow  things  to  go  on  without  active  inter- 
ference," the  "natural  development  of  events" 
would  automatically  bring  about  resumption.*  It 
was  promised,  indeed,  by  one  eminent  Congressman, 
destined  later  to  take  up  McCulloch's  uncompleted 
work,  that  if  the  Secretary  would  do  nothing  else 
but  meet  current  obligations,  "  no  power  could  pre- 
vent" resumption  within  twelve  or  eighteen  months.* 
More  than  one  legislator  could  not  understand, 
"  when  we  have  $450,000,000  [debt]  bearing  no  in- 

•  Treas.  Rep.,  1866,  pp.  8,  9  ;  Men  and  Measures,  p.  211. 

•  Thaddeus  Stevens,  House  of  Representatives,  March  i6,  1866. 

•  W.  D.  Kelley,  House  of  Representatives,  February  21. 

•  Hiram  Price,  House  of  Representatives,  March  16. 

»  G.  S.  Boutwell,  House  of  Representatives,  March  16, 

•  John  Sherman,  Senate,  April  9.  . 


18661  Opposition  to  Contraction  13 

terest,  and  which  need  bear  no  interest,  why  it  is  to 
be  taken  up  and  put  into  bonds."  '  The  excellence 
of  a  circulating  medium  "  that  rests  on  the  property 
of  the  whole  country,  and  has  for  its  security  the 
faith  and  patriotism  of  the  greatest  and  freest  country 
on  the  face  of  the  globe,"  *  played  its  usual  part  in 
the  discussion;  so  did  the  argument  that  "the 
amount  of  legal  tenders  now  outstanding  is  not  too 
much  for  the  present  condition  of  the  country."* 
In  short,  all  the  arguments  which  have  been  made 
familiar  by  the  twenty  subsequent  years  of  contro- 
versy, cut  a  figure  in  this  opening  discussion.  Even 
the  peculiar  virtues  of  a  high  protective  tariff^ 
through  which  the  country  might  by  a  short  cut 
reach  a  situation  where  resumption  would  be  easy, 
were  recited  in  this  debate  of  1866.* 

As  a  matter  of  fact,  even  the  restricted  powers  of 
note  retirement  granted  under  the  law  of  March, 
1866,  were  revoked  within  two  years.  Little  or  no 
progress  had  meantime  been  made  towards  resump- 
tion of  specie  payments.  The  Secretary  himself  had 
officially  pointed  out  that  two  commercial  influences 
must  be  removed  before  resumption  would  be  pos- 
sible; the  excessively  high  prices  in  the  United 
States  and  the  heavy  balance  of  foreign  trade 
against  us.'  But  prices  continued  above  the  Euro- 
pean level,  and,  as  a  consequence,  export  of  mer- 

'  Thaddeus  Stevens,  House  of  Representatives,  March  l6. 
'  W.  A.  Darling,  House  of  Representatives,  March  i6. 

*  John  Sherman,  Senate,  April  9. 

*  W.  D.  Kelley,  House  of  Representatives,  February  21  {  W.  A* 
Darling,  House  of  Representatives,  March  16. 

*  Treas,  Hef.t  1865,  p.  13  ;  1866,  p.  ii. 


14  American  Finance  [I866 

chandise  was  checked  and  imports  greatly  stimulated. 
The  entire  gold  product  of  each  year  in  the  United 
States  was  sent  abroad.  Some  effort  had  indeed 
been  made  to  accumulate  a  specie  reserve  in  the 
Treasury,  obtained  through  the  required  payment  of 
customs  dues  in  gold.  But  part  of  this  fund  was 
disbursed  again  for  interest  on  the  public  debt ;  the 
mercantile  community  protested  urgently  against 
the  hoarding  of  any  excess,  with  gold  selling  at  1 50 ' ; 
and  in  the  end,  the  Treasury  was  forced  repeatedly 
to  throw  its  own  coin  surplus  on  the  market,  simply 
in  order  to  check  the  disastrous  operations  of  the 
speculators.'  Resumption,  in  short,  which  Mr. 
Sherman  had  predicted  as  a  certainty  within  eigh- 
teen months  of  March,  1866,  was,  if  anything,  further 
off  than  ever. 

Contraction  of  the  inflated  currency,  even  if  pur- 
sued under  the  limitations  of  the  Act  of  1866,  would 
in  time  have  brought  about  conditions  under  which 
resumption  might  have  been  planned.  But  events 
outside  of  the  United  States  now  moved  in  such  a 
way  as  to  turn  the  entire  financial  community  against 
the  Secretary's  policy.  Hardly  two  months  after 
the  vote  of  March  came  a  wholly  unexpected  crisis 
in  the  foreign  money  markets.  The  London  col- 
lapse, precipitated  by  the  Overend-Gurney  failure 
of  May,  1866,  was  in  some  respects  as  complete  as 
any  in  the  history  of  England.  It  affected  every 
nation  with  which  Great    Britain   had  commercial 

'  Memorial  of  New  York  banke.s  and  shipping  merchants  to  Sec- 
retary McCulloch,  July,  1866, 
»  Treas.  Rep.,  1866,  p.  9. 


1867]  Congress  Stops  Contraction  15 

dealings ;  not  least  of  all  the  United  States,  of  whose 
securities  it  was  estimated  that  European  investors 
even  then  held  $6oo,ooo,cxx).'  During  three  months 
the  Bank  of  England  kept  its  minimum  discount 
rate  at  the  panic  figure  of  ten  per  cent. ;  the  conse- 
quent sudden  recall  of  foreign  capital  put  a  heavy 
strain  on  the  American  markets. 

With  the  familiar  disposition  of  the  trade  com- 
munity to  lay  the  blame  for  disordered  markets  on 
some  move  of  public  policy,  the  Treasury's  opera- 
tions to  reduce  outstanding  notes  were  made  the 
scapegoat.*  Politicians  with  an  eye  to  popularity 
were  quick  to  catch  this  drift  of  public  sentiment. 
Some  of  them  honestly  believed  that  McCulloch's 
action  in  the  currency  was  the  cause  of  the  trade 
distress ;  others,  better  informed  but  equally  politic, 
avoided  personal  declaration  of  opinion,  but  charac- 
teristically announced  that  whether  the  theory  was 
correct  or  not,  the  public  believed  it,  and  that  in 
deference  to  the  public,  currency  contraction  ought 
to  cease.*  The  usual  result  ensued.  Under  the 
previous  question,  and  without  debate,  a  measure 
revoking  absolutely  the  Secretary's  power  of  contrac- 
tion passed  the  House  of  Representatives  in  Decem- 
ber, 1867,  by  a  vote  of  127  to  32.  In  the  Senate 
there  was  an  able  show  of  opposition,  but  it  was 
plainly  put  on  the  defensive.  Even  its  very  mild 
amendment  hinting  at  future  return  to  the  contrac- 

>  McCulloch,  Treas.  Rep.,  1866,  p.  12. 

»0.  P.  Morton,  Senate  speech,  January  9,  1868;  A.  G.  Cattell, 
Senate  speech,  January  10,  1868. 
'  John  Sherman,  Senate  speech,  January  9,  1868.     ' 


1 6  American  Finance  nses 

tion  policy  was  promptly  rejected  by  the  House, 
and  on  January  22,  1868,  the  resolution  passed  both 
chambers  in  its  original  and  final  shape. 

This  was  the  end  of  the  McCulloch  plan.  It  was 
the  end  of  all  serious  debate  upon  resumption,  for  at 
least  six  years.  It  was  also,  and  very  logically,  the 
beginning  of  the  fiat-money  party  and  of  the  plan  to 
pay  the  Government's  bonded  debt,  wherever  prac- 
ticable, in  notes.  This  second  proposition  was 
thrown  into  the  arena  of  a  Presidential  canvass 
within  six  months  of  the  vote  of  January,  1868, 
being  formally  proposed  in  the  platform  of  the 
Democratic  party.  Governor  Seymour,  it  is  true, 
rejected  this  financial  plank  of  the  convention  which 
nominated  him,  and  rejected  it  as  plainly  as  General 
McClellan  had  rejected  the  "  peace  plank  "  of  the 
same  party  four  years  before.  But  the  repudiation 
issue  was  fought  out,  in  the  canvass,  nevertheless. 
The  Republicans  were  forced  into  open  defence  of 
sound  financial  principles  by  the  very  recklessness  of 
their  opponents.  As  happened  under  very  similar 
conditions  twenty-eight  years  later,  the  compromise 
ers  and  waverers,  who  had  cut  so  prominent  a  figure 
in  the  debates  of  1866  and  1868,  were  compelled  to 
show  their  colors,  and  the  result,  for  the  time  at  any 
rate,  was  salutary.  Helped  by  the  great  personal 
prestige  of  its  candidate.  General  Grant,  the  Repub- 
lican party  won  a  sweeping  victory.  Having  won, 
the  party's  representatives  hastened,  while  still 
under  the  excitement  of  the  canvass,  to  make  their 
public  pledge  for  the  future.  President  Johnson, 
who  was  then  at  open  odds  with  bis  party,  had  pro- 


1W591  'rh£  Climax  of  Inflation  %^ 

duced  in  his  Annual  Message  of  December  7,  1868, 
the  extraordinary  suggestion  that  "  the  six  per  cent, 
interest  now  paid  by  the  Government  "  on  its  debt 
"  should  be  applied  to  the  reduction  of  the  principal 
in  semi-annual  instalments";  in  other  words,  that 
the  plan  of  repudiating  interest  obligations — since 
adopted,  with  no  agreeable  results,  by  Turkey  and 
Greece — should  be  formally  approved  by  the  United 
States.  This  remarkable  utterance  was  first  con- 
demned by  an  overwhelming  vote  in  both  House 
and  Senate;  next,  by  an  almost  equally  decisive 
vote,  on  March  3,  1869,  Congress  adopted  the  Public 
Credit  Act,  promising  coin  redemption  of  both  notes 
and  bonds,  and  concluding  with  the  declaration  that 
the  United  States  "  solemnly  pledges  its  faith  to 
make  provision,  at  the  earliest  practicable  period,  for 
the  redemption  of  the  United  States  notes  in  coin." 

The  promise  was  as  easily  made  as  the  similar 
pledge  of  December,  1865 ;  it  was  still  more  easily 
broken.  No  such  arrangement  was  made,  nor  any 
serious  attempt  in  that  direction,  until  the  matter 
was  forced  on  the  party  by  the  exigency  of  politics. 
Not  only  was  no  effort  made  to  reduce  outstanding 
legal  tenders,  but  the  supply  in  circulation  was 
heavily  increased;  rising  from  $314,704,000  in  the 
middle  of  1869  to  $346,168,000  in  1872,  and  two 
years  later,  as  a  result  of  the  Treasury's  weak  ex- 
periments in  the  panic,  to  $371,421,000. 

The  period  was  congenial  to  such  juggling  with 
public  credit  and  legislative  pledges.  Socially, 
financially,  and  politically,  it  stands  out  quite  apart 
from  any  other  decade  of  the  century.    It  comprised, 


1 8  American  Finance 


[1873 


in  the  United  States,  such  a  succession  of  episodes 
as  the  plundering  reign  of  the  Tweed  cabal  in  New 
York  City;  the  impeachment  of  President  Johnson 
for  purposes  of  poHtical  revenge ;  the  infamous  gold- 
market  conspiracy  of  1869,  into  which  the  ringlead- 
ers very  nearly  dragged  the  Federal  Administration ; 
the  rise  of  vulgar  and  dishonest  railway  speculators 
to  public  eminence ;  the  notorious  corruption  of  the 
courts  by  such  adventurers ;  scandal  fixed  upon  Con- 
gress by  the  Credit  Mobilier  disclosures  and  on  the 
Administration  by  the  Belknap  impeachment  trial. 
Moral  sense  seemed  for  a  time  to  have  deteriorated 
in  the  whole  community ;  it  was  a  sorry  audience,  at 
Washington  or  elsewhere,  to  which  to  address  ap- 
peals for  economy,  retrenchment,  and  rigid  preser- 
vation of  the  public  faith.  The  Government's 
financial  recklessness  was  readily  imitated  by  the 
community  at  large ;  debt  was  the  order  of  the  day 
in  the  affairs  of  both.  As  the  period  approached  its 
culmination,  foreign  trade  reflected  the  nature  of  the 
situation.  Merchandise  imports  in  the  fiscal  year 
1 87 1  rose  $84,000,000  over  1870;  in  1872  they  in- 
creased $106,000,000  over  1 87 1.  This  movement 
was  the  familiar  warning  of  an  approaching  crash ; 
but  the  warning  fell  on  deaf  ears,  as  it  usually  does. 
In  1873  the  house  of  cards  collapsed. 

The  panic  of  1873  left  the  country's  financial  and 
commercial  structure  almost  a  ruin.  It  had,  how- 
ever, several  ulterior  results  so  valuable  that  it  is  not 
wholly  unreasonable  to  describe  the  wreck  of  credit 
as  a  blessing  in  disguise.  American  prices,  long  out 
of  joint  with  the  markets  of  the  world,  and  thoroughly 


1874]  Attitude  of  Congress  19 

artificial  in  themselves,  were  certain  to  be  eventually 
brought  down.  They  would  have  been  lowered, 
necessarily,  under  the  McCulloch  contraction  plan, 
but  the  fall  would  have  been  gradual.  This  means 
of  readjustment  Congress  and  the  people  rejected ; 
there  was  left,  therefore,  only  the  severe  alternative 
of  sudden  and  violent  liquidation.  But  this  very 
liquidating  process  served  a  useful  double  purpose ; 
it  disclosed  the  nation's  true  resources,  and  it  placed 
the  United  States  on  equal  footing  with  the  com- 
mercial world  at  large.  With  the  bursting  of  the 
bubble  of  inflated  debt  and  inflated  prices,  the  ex- 
cessive importations  ceased.  Simultaneously  the 
export  trade,  which  had  halted  during  1872,  in  spite 
of  the  continued  agricultural  expansion,  rose  to  pro- 
portions never  before  approached  in  our  commercial 
history.  In  1874,  the  balance  of  foreign  trade, 
which  during  the  twenty-five  preceding  years,  with 
only  four  exceptions,  had  been  running  heavily 
against  the  United  States,  turned  permanently  in 
our  favor.  In  the  fiscal  year  1872,  imported  mer- 
chandise exceeded  exports  by  $182,417,000;  in  1878, 
the  export  excess  reached  the  unprecedented  sum  of 
$257,814,000.  By  1876,  even  the  continuous  out- 
flow of  gold  was  checked.  In  short,  the  two  condi- 
tions fixed  by  Hugh  McCulloch,  ten  years  before,  as 
indispensable  to  resumption  of  specie  payments,  had 
now  been  realized. 

Congress  was  not  by  any  means  disposed,  however, 
to  seize  the  opportunity.  The  first  result  of  the 
money  market  crisis  in  1873,  as  in  all  similar  years, 
was  urgent  public  clamor  for  more  currency.     The 


20  American  Finance  [|874 

Supreme  Court  had  decided  finally,  in  1871,  for  the 
constitutionality  of  the  legal  tenders ;  the  Secretary 
of  the  Treasury,  in  1873,  ^^^  so  far  yielded  to  the 
prevalent  excitement  as  to  reissue  legal-tender  notes 
already  formally  retired.'  The  first  response  of  Con- 
gress, therefore,  was  an  inflation  measure.  By  a 
vote  of  140  to  102  in  the  House  of  Representatives, 
and  of  29  to  24  in  the  Senate,  a  law  was  passed  for 
the  permanent  increase  of  the  legal-tender  currency 
by  $18,000,000.  The  Republican  party  controlled 
Congress  by  unusually  large  majorities;  but  sixty 
per  cent,  of  the  party's  vote  in  each  chamber  was 
cast  in  favor  of  the  bill.  Only  the  interposition  of 
Grant's  Presidential  veto  prevented  this  first  positive 
backward  step  in  the  direction  of  fiat  money. 

It  is  reasonable  to  suppose  that  this  curious  vote 
of  the  Administration  party,  which  occurred  in 
April,  1874,  measured  the  party's  political  despera- 
tion. They  were  about  to  receive,  in  the  Congres- 
sional elections,  the  usual  chastisement  experienced 
by  a  dominant  party  when  the  people  vote  in  a 
period  of  hard  times;  the  inflation  act  was  an  anchor 
thrown  desperately  to  windward.  The  experiment 
was  in  all  respects  a  failure.  Even  the  party's  own 
State  conventions  failed  to  say  a  good  word  for  the 
inflation  bill,  and  it  gained  no  mitigation  of  sentence 
in  the  November  vote.  In  the  Forty-third  Congress, 
the  House  of  Representatives  had  been  Republican 
by  the  unusual  plurality  of  no;  in  the  Forty-fourth, 
chosen  in  1874,  the  Democrats  controlled  the  House 
by  74  plurality. 

^N.  Y.  Financial  Chronicle,  Dec.  6,  1873. 


1875]  The  Resumption  Act  21 

The  Forty-third  Congress  had  three  months  of 
existence  left  to  it  after  the  vote  of  November,  1874, 
Already  defeated  overwhelmingly  at  the  polls,  it 
had  nothing  to  risk  by  a  move  in  sound-money  legis- 
lation, and  possibly  much  to  gain.  It  used  this 
three-months'  period  to  enact  a  law  of  the  first  im- 
portance, not  only  to  the  nation,  but  to  the  Repub- 
lican party's  future  history — a  law  which  must  fairly 
be  described,  however,  under  the  circumstances  of 
the  time,  as  an  expression  of  death-bed  repentance. 
This  was  the  Specie-Resumption  Act,  drawn  up  by 
a  party  committee,  and  submitted  to  Congress,  in 
December,  1874,  by  Senator  John  Sherman.'  It 
fixed  the  date  for  resumption  of  specie  payments  at 
January  i,  1879,  provided  for  the  reduction  of  legal- 
tender  notes  from  $382,000,000  to  $300,000,000,  but 
made  nb  provision  for  any  further  retirement  of  the 
notes.  It  conferred,  for  redemption  purposes,  the 
discretionary  bond-issue  power,  afterwards  employed 
by  Secretary  Sherman  in  1878  and  1879,  and  by  Sec- 
retary Carlisle  in  1894  and  1895.  It  went  through 
Congress  on  January,  7,  1875,  and  with  its  enactment 
this  chapter  may  properly  be  closed.  Unlike  most 
subsequent  financial  measures,  the  Resumption  Act 
won  its  majorities  in  both  Houses  by  the  strictest 
kind  of  party  vote.  Not  one  Democratic  Congress- 
man supported  it  in  either  chamber ;  but  the  large 
Republican  majorities  of  the  1872  election  were  still 
available.  The  bill  passed  the  Senate  by  a  vote  of 
32  to  14,  and  the  House  by  136  to  98.  When  it 
passed,  it  was  generally  declared  by  financial  critics 

'  Recollections  of  John  SAerman,  i.,  p.  510, 


22 


American  Finance 


[1675 


that  specie  resumption  under  the  measure  was  im- 
possible, and  it  was  openly  promised  by  the  opposi- 
tion party,  about  to  come  into  control  of  Congress 
by  a  large  majority,  that  they  would  make  short 
work  of  the  Act  of  1875  o"  their  return  to  power. 


CHAPTER  II 

THE  STRUGGLE  FOR  RESUMPTION 

THE  Resumption  Act  is  one  of  the  most  curious 
laws  in  financial  history.  It  was  plain  in  its 
requirement  that  on  and  after  January  i,  1879,  ^^^ 
Treasury  should  "  redeem  in  coin  the  United  States 
legal-tender  notes  then  outstanding,  on  their  pre- 
sentation for  redemption  "  ;  but  it  left  the  Treasury 
to  make  whatever  arrangements  it  might  choose. 
The  law,  it  is  true,  conferred  ample  powers.  In 
order  "  to  prepare  and  provide  for  the  redemption 
in  this  Act  authorized  or  required,"  it  empowered 
the  Secretary  of  the  Treasury  "  to  use  any  surplus 
revenues,  from  time  to  time,  in  the  Treasury  not 
otherwise  appropriated,  and  to  issue,  sell,  and  dis- 
pose of,  at  not  less  than  par  in  coin,  either  of  the 
descriptions  of  bonds  of  the  United  States  described 
in  the  Act  of  Congress  approved  July  14,  1870."  ' 
This  power  was  not  only  enormous  in  its  immediate 
possibilities,  but  it  was  perpetual.  The  notes  re- 
deemed were  not,  as  in  1866,  to  be  cancelled  or 
retired,  but  to  be  reissued.     When  reissued,  they 

'  U.  S.  Statutes,  43d  Congress,  2d  session,  chap.  zv. 
39 


24  American  Finance  ti875 

must  necessarily  become  again  redeemable  in  coin, 
with  all  the  provisions  of  the  Resumption  Act  again 
applying.  This  fact  was  recognized  even  in  the  de- 
bate upon  the  bill.  Since  the  discretionary  power  of 
bond-issue  was  granted  "  not  only  to  prepare  for  but 
to  maintain  resumption,"  '  it  followed  that  the 
power  might  legally  be  exercised  by  any  future 
Administration.* 

Now  laws  which  make  such  extraordinary  grants 
to  the  Executive  commonly  specify  with  the  minu- 
test care  how  the  powers  granted  shall  be  employed. 
The  Resumption  Act  does  nothing  of  the  kind.  It 
places  in  the  Secretary's  hands,  as  the  author  of  the 
law  correctly  pointed  out,  "  the  whole  credit  and 
money  of  the  United  States,"  *  but  it  does  not  give 
the  slightest  hint  as  to  what  use  he  shall  make  of  it. 
Resumption  of  specie  payments  is  associated,  in  the 
average  mind,  with  the  accumulation  of  a  coin  re- 
serve, out  of  which,  when  necessary,  notes  may  be 
ledeemed.  But  the  Resumption  Act  makes  no  men- 
tion of  a  coin  reserve.  This  omission  left  it  wholly 
to  the  discretion  of  the  administrator  of  the  law  how 
much  gold  he  should  accumulate  for  the  purpose. 
He  might,  in  strict  accordance  with  the  law,  use  his 
powers  so  as  to  throw  the  money  market  into  con- 
vulsion. He  might,  on  the  other  hand,  either 
through  choice  or  necessity,  make  such  inadequate 
provision,    that    after  January   i,    1879,   his  entire 

'  John  Sherman,  Senate  speech,  December  22,  1874. 
»  Treas,  Rep.,  1879,  P-  ^^A  1880,  p.  xi.  ;  Report  H.  R.  Judiciary 
Committee,  July  6,  1892. 
'John  Sherman,  Senate  speech,  December  22,  1874. 


IS75J  ProvisioTts  for  Resumption  25 

stock  of  gold  would  be  withdrawn  for  hoarding 
or  export  purposes.  There  was  involved,  there- 
fore, a  double  problem  of  great  delicacy:  could 
a  large  gold  reserve  be  acquired  and  kept  in  the 
Treasury  before  1879,  ^"^^  could  it  be  protected 
afterwards  ? 

At  first  glance,  it  would  appear  that  the  Treasury's 
discretionary  power  in  the  loan  market,  under  the 
Act  of  1875,  made  it  an  easy  matter  to  obtain  a  suffi- 
cient coin  reserve*  But  there  was  no  such  certainty 
when  the  law  was  passed.  On  the  basis  solely  of 
domestic  loans,  the  operation  was  impossible.  As 
late  as  1877,  it  was  officially  estimated  that  the  total 
stock  of  gold  in  the  United  States,  outside  the  Treas- 
ury, was  less  than  $100,000,000,'  and  of  that  sum 
the  two  thousand  national  banks,  on  which  the 
Treasury  must  mainly  depend  for  a  domestic  gold 
loan,  held  only  $22,658,820.*  This  was  a  wholly  in- 
adequate supply,  and,  what  made  the  matter  worse, 
the  country  had  been  losing  annually,  through  ex- 
port, more  gold  than  it  produced  from  its  mines. 
In  1875  and  the  four  preceding  years,  the  United 
States  produced  $182,000,000  gold,  and  exported, 
net,  $204,000,000.*  So  far  as  could  be  judged  in 
1875,  an  attempt  to  hoard  in  the  Treasury  even  a 
moderate  sum  of  domestic  gold  would  revive  the 
commercial  dissatisfaction  of  1866,  In  fact,  the 
Treasury  was  more  than  once  compelled,  even  after 

•  Director  of  the  Mint,  Annual  Report,  1877. 

•  Comptroller  Knox,  Treas.  Rep.,  1877,  p.  163. 

•  Annual  U.  S.  Mint  Reports;  U.  S.  Bareaa  of  Statistics,  Annual 
R^orts, 


26  American  Finance  [i875 

the  passage  of  the  Resumption  Law,  to  throw  part 
of  its  gold  fund  on  the  market.' 

There  remained  the  foreign  markets  from  which 
to  obtain  a  gold  supply.  It  was  possible  to  buy 
gold  abroad,  even  with  foreign  exchange  against  the 
United  States.  But  Secretary  Bristow  expressed, 
in  1875,  the  very  general  doubt  as  to  whether  such 
an  operation  would  not  be  deliberately  obstructed 
by  foreign  institutions.*  Nor  was  this  apprehension 
groundless.  France  and  Germany  were  already  ac- 
cumulating specie  for  exactly  the  purpose  contem- 
plated  by  the  United  States,*  and  it  was  common 
belief,  even  three  years  later,  that  the  Bank  of  Eng- 
land would  resort  to  extreme  measures  for  the 
protection  of  its  own  reserve.* 

I  have  said  that  the  Law  of  1875  involved  the 
double  problem  of  providing  for  resumption  at  the 
stipulated  date,  and  of  maintaining  it  afterward.  It 
is  the  first  of  these  undertakings  which  we  shall 
survey  in  the  present  chapter.  There  were,  as  we 
have  seen  already,  two  influences  at  work  in  1875, 
which  made  possible  the  achievement  as  it  would 
not  have  been  in  1866.  These  influences — the  shift- 
ing of  the  foreign  trade  balance  in  favor  of  the 
United  States  and  the  subsequent  check  to  gold  ex- 
ports— were  factors  on  which  no  finance  minister 
could  have  reckoned.  Both  in  fact  developed  after 
the  passage  of  the  Resumption  Law.  But  even 
after  allowing  for  these  accidental  commercial  ad- 

*  Treas.  Rep.,  1875,  p.  xxii.  *  Ibid.,  p.  zxi. 

'  Letters  of  Treasury's  London  agent,  August  1 1  and  15,  1877. 
*y9*y.,  August  10,  1878. 


18761  Problems  of  the  Treasury  27 

vantages,  the  credit  for  the  return  to  specie  payments 
on  January  i,  1879,  belongs  individually  and  with- 
out dispute  to  John  Sherman. 

As  one  of  the  authors  of  the  Resumption  Act, 
Mr.  Sherman  was  responsible  both  for  its  virtues  and 
its  vices.  His  appointment  to  the  Treasury,  there- 
fore, in  the  Administration  under  which  resumption 
must  by  law  be  carried  out,  was  entirely  logical.  It 
is  true,  the  Presidential  canvass  of  1876  was  not 
conducted  on  the  issue  of  resumption.  The  Act  of 
1875,  a  Republican  party  measure,  and  passed  with- 
out one  Democratic  vote  in  either  House  of  Con- 
gress, was  not  so  much  as  named  in  the  Republican 
national  platform  of  1876.  But  in  politics,  the  can- 
didate often  counts  for  quite  as  much  as  the  platform, 
and  Mr.  Hayes  had  won  the  Ohio  Governorship, 
only  a  year  before,  after  a  contest  pivoting  wholly 
on  the  specie-payment  issue.  The  choice  of  Mr. 
Sherman  for  finance  minister  in  his  national  Admin- 
istration was  a  normal  sequel.  Yet  the  practical 
efficiency  of  Mr.  Sherman,  in  an  administrative 
office,  could  not  then  have  been  foretold.  The  Sec- 
retary's previous  career,  though  useful  and  indus- 
trious, had  been  marred  by  weaknesses  which  did 
not  promise  well.  As  a  legislator,  he  belonged  to 
the  school  of  compromisers  who  have  indirectly 
been  responsible,  in  a  score  of  critical  emergencies, 
for  the  gravest  mischief  in  our  history.  If  his  con- 
cessions had  been  proposed  only  after  aggressive 
contest,  when  deadlock  or  defeat  was  the  only  alter- 
native in  sight,  the  criticism  might  be  qualified. 
But  it  was  Mr.  Sherman's  unfortunate  policy  as  a 


28  American  Finance  \\^^^ 

legislator  that  he  either  opened  the  contest  with  a 
plan  of  compromise — thereby  surrendering  most  of 
his  legitimate  vantage-ground — or  else  abandoned 
his  position  long  before  the  battle  was  fought  out. 
So  eager  was  he,  in  the  initial  currency  debate  of 
1866,  to  fix  upon  this  middle  ground,  that  he  played 
directly  and  effectually  into  the  hands  of  the  op- 
ponents of  resumption.  He  openly  confessed  his 
deference  to  public  clamor  in  the  vote  of  1868.' 
He  defended,  on  the  explicit  ground  of  evasion 
of  a  disputed  point,  the  obscurity  of  the  Resump- 
tion Act  regarding  reissue  of  the  legal  tenders.* 
It  is  impossible  to  harmonize  with  one  another  his 
public  utterances  and  his  public  votes.  He  acknowl- 
edged freely,  on  various  occasions,  that  extinction 
of  the  legal-tender  notes  was  the  simplest  road  to 
specie  payments  * ;  he  declared  with  equal  frankness 
that  inflated  prices  must  come  down  in  the  move- 
ment towards  resumption,  and  that  the  shrinkage 
would  be  positive  advantage  to  our  industries.*  Yet 
he  made  these  very  incidents  of  the  McCulloch  con- 
traction movement  the  basis  of  a  determined  opposi- 
tion. From  the  floor  of  Congress  he  attacked  this 
plan,  the  only  alternative  to  the  fiat-money  carnival 
of  the  next  five  years,  with  arguments  which  were 
effectively  used  in  behalf  of  every  future  movement 
of  inflation.* 

*  Senate  speech,  January  9,  1868. 

*  Senate  speeches,  December  22,  1874  \  March  16,  1876 ;  JiecoUtc*. 
tions,  i.,  510. 

*  Senate  speech,  December  22,  1874. 

*  Senate  speech,  January  15,  1868, 

*  Senate  speech,  April  9,  1866. 


18781  Secretary  yohn  Sherman  29 

For  a  Secretary  of  the  Treasury,  at  a  peculiar  crisis 
in  the  Government's  finance,  these  were  unpromising 
antecedents.  But  Mr.  Sherman  was  not  the  first  of 
public  men  to  show  that  the  faults  or  weakness  of  a 
legislator,  whose  purpose  is  to  obtain  enactment  of 
a  policy,  will  sometimes  disappear  in  the  administra- 
tor, who  presses  settled  policies  into  execution.  As 
Secretary,  he  was  unwavering  in  pursuit  of  the 
resumption  goal;  practical,  resolute,  and  adroit  in 
the  means  employed.  His  official  correspondence 
gives  consistently  the  picture  of  a  public  officer  of 
foresight  and  decision.  It  was  in  the  face  of  the 
repudiation  clamor  that  he  declared  officially  for 
payment  of  the  Government  bonds  in  gold.'  This 
action  fixed  a  precedent  of  the  highest  value. 
Equally  distinct  was  the  Secretary's  public  declara- 
tion that  the  Act  of  1875  conferred  the  power  to 
issue  bonds  after,  as  well  as  before,  resumption'; 
another  precedent  which  did  invaluable  service  six- 
teen years  afterward.  Only  on  one  conspicuous  oc- 
casion, hereafter  to  be  noticed,  did  he  revert  to  his 
old-time  juggling  with  a  public  question,  and  then 
the  strong  good  sense  of  the  President  overruled 
him. 

What  was  perhaps  still  more  essential,  at  this 
juncture  in  the  Government  finances,  was  the  faculty 
displayed  by  Mr.  Sherman,  of  keeping  the  mastery 
of  outside  negotiation.     This  was  no  small  achieve- 

'  Letter  to  Colgate  &  Co.,  December  i,  1877  ;  Specie  Resumption, 
pp.  22,  23,  24,  80,  81,  201,  709;  Trea%.  Rep.,  1877,  ?•  «m  1878, 
p.  xir. 

»  Treas.  Rep.,  1878,  p.  x. ;  1879,  p.  x. ;  1880,  p.  xiv. 


30  American  Finance  (i878 

ment ;  for,  in  addition  to  the  doubts  surrounding  the 
resumption  operation  at  the  start,  angry  and  bitter 
opposition  from  Congress  confronted  the  Secretary 
at  every  step.  The  banking  community  was  not 
enthusiastic  in  its  offers;  even  the  domestic  institu- 
tions believed  that  the  risk  was  great  enough  to  call 
for  large  concessions  from  the  Treasury.  Mr.  Sher- 
man made  no  such  concessions,  and  the  banking 
interests  were  presently  aware  that  a  cool  head  and 
an  experienced  hand  were  in  control  of  the  Govern- 
ment's side  of  the  bargain.  He  sounded  all  parties 
before  committing  himself  to  any,  forced  reluctant 
interests  to  bid  through  fear  of  losing  entirely  the 
prestige  of  the  operation,  and  held  his  own  position 
by  compelling  them  to  bid  against  each  other.  The 
manner  in  which  the  Secretary,  in  his  loans  of  1878 
and  1879  particularly,  played  off  the  London  syndi- 
cate against  the  hesitating  New  York  banks,  and  the 
city  banks  against  the  syndicate,  gave  him,  from  first 
to  last,  the  advantage  of  the  situation.'  This  ad- 
vantage he  retained  in  the  face  of  adverse  movements 
of  international  exchange,*  stringency  in  the  London 
discounts,*  and  distinctly  hostile  operations  on  the 
gold  market.*  Results,  in  cases  of  this  kind,  speak 
for  themselves.  To  say,  therefore,  that  Secretary 
Sherman's  management  of  the  Treasury  achieved 

^  XeeollecHons,  ii.,  638;   Specie  Resumption,  391,  665;  letter  of 
August  Belmont,  February  13,  1879. 

*  Specie  Resumption,  pp.  280,  358. 

*  London  Economist,  October  ig,  1878 ;  Treasury's  London  cor- 
respondence, August  3,  10,  and  17,  1878. 

*  Letter  of  August  Belmont  to  Sherman,  April  26,  1878. 


1878]  Mr.  Sherman* s  Operations  31 

during  his  time  precisely  the  results  proposed,  and 
achieved  them  promptly,  is  to  concede  his  adminis- 
tration's practiced  success.  Nor  were  these  results 
attained  through  extravagance  or  waste.  In  his  re- 
funding and  resumption  operations,  Mr.  Sherman 
placed  the  bonds  of  the  United  States  on  better 
terms  than  any  of  his  predecessors.'  On  one  note- 
worthy occasion,  he  sold  to  a  foreign  syndicate  a 
considerable  block  of  bonds  at  a  figure  virtually 
above  the  price  of  the  same  bonds  on  the  open 
market,  and  he  did  this  after  banking  acquaintances 
had  warned  him  that  the  achievement  was  impos- 
sible.' It  was  through  Secretary  Sherman  that  the 
plan  of  sales  direct  to  the  investor,  without  the 
intervention  of  a  syndicate,  was  afterwards  intro- 
duced.* 

Some  mistakes  in  detail  policy  usually  occur  in 
any  complex  banking  operation,  and  criticism  has 
by  no  means  spared  Mr.  Sherman.  But  even  in 
these  disputed  questions,  the  Treasury  had  a  good 
defence.  The  blunder  of  fixing  a  thirty-year  t^rm 
to  the  $741,000,000  4  per  cents.,  frequently  laid 
at  his  administration's  door,  was  in  fact  decreed 
arbitrarily  by  the  Funding  Act  of  1870,  and  was  in- 
serted in  that  statute  against  Mr.  Sherman's  own 
advice.*    Conceivably,  the  extension  of  maturing  6 

'  Treat.  Rep.,  1877,  p.  viii ;  Recollections,  i.,  570,  571. 

*  Letter  of  H.  C.  Fahnestock,  March  23,  1878 ;  Specie  Resump- 
tion, pp.  279,  281,  283,  284,  285,  294. 

*  Recollections,  i.,  574;  letter  to  the  Senate,  March  26,  1879; 
H.  C.  Adams,  Public  Debts,  236, 

*  Recollections,  '\.,  454. 


32  American  Finance  n878 

per  cents,  at  i\  subject  to  call,  arranged  a  few 
months  after  Secretary  Sherman's  term  expired, 
might  have  been  feasible  in  1877  and  1878.  Yet  it 
must  be  remembered  that  the  credit  of  the  United 
States,  after  two  years  of  specie  payments,  was  a 
very  different  thing  from  its  credit  in  the  earlier 
period.  Congress,  moreover,  true  to  its  record  of 
the  whole  Administration,  used  the  3  J  per  cent,  pro- 
viso as  a  means  of  deliberate  embarrassment  to  the 
Secretary's  operations.  It  loaded  down  its  new  re- 
funding bill,  in  which  that  rate  was  authorized,  with 
stipulations  of  a  character  so  wild  as  to  necessitate  a 
Presidential  veto.' 

Of  all  the  criticism  on  the  Secretary's  policy,  that 
which  clung  longest  was  the  charge  that  in  the  use 
of  Government  deposit  funds,  he  granted  undue 
favors  to  the  banks.  That  Mr.  Sherman  was  at 
times  politically  indiscreet,  in  permitting  concentra- 
tion of  the  bulk  of  his  deposits  with  a  single  bank, 
cannot  be  doubted.  But  it  by  no  means  follows 
that  the  action  was  unwise  financially.  The  syndi- 
cate of  foreign  bankers,  through  whom  the  large 
resumption  loan  was  placed,  were  allowed  to  name 
their  own  depository,  and  the  institution  named  by 
them  had  been  the  most  efficient  agent  of  the  Gov- 
ernment.* Politically,  the  Secretary  would  have 
played  a  wiser  part  had  he  distributed  this  deposit ; 
from  any  other  point  of  view,  it  was  a  matter  of 
complete  indifference.     If  the  example  of  foreign 

^Recollections,  ii.,  758,  796. 

*  Recollections,  ii.,  798  ;  letter  to  a  New  York  banker,  January  13, 
X879 ;  Specie  Resumption,  p.  459. 


1878]  Government  Bank  Deposits  33 

governments  had  any  bearing  on  the  matter,  the 
selection  of  a  single  bank  was  preferable.  As  for 
the  general  policy  of  bank  deposits,  that  was  not 
only  sustained  by  precedent  in  this  and  other  coun- 
tries,' but  it  was  indispensable.  When  any  block  of 
new  refunding  bonds  had  been  sold  and  paid  for, 
ninety  days  had  to  elapse,  under  the  formal  notice, 
before  the  old  bonds  could  be  taken  up.  In  the 
British  Government,  all  such  surplus  of  the  ex- 
chequer goes,  as  a  matter  of  course,  on  deposit  with 
the  Bank  of  England.  Common  prudence  required 
that  the  purchase  money  in  our  Government's  pos- 
session, during  these  three-months  intervals,  should 
be  similarly  kept  on  the  open  market.*  In  extend- 
ing these  deposits,  always  abundantly  secured,  Mr. 
Sherman  not  only  followed  common-sense  and 
precedent,  but  had  the  best  advice,  legal  and  finan- 
cial, to  sustain  him.' 

I  have  spoken  of  the  obstacles  thrown  in  the  Ad- 
ministration's way  by  Congress.  The  circumstances 
under  which  the  Hayes  Administration  entered  office 
were  in  all  respects  discouraging.  Administrative 
plans  and  policies  have  frequently  enough  been  ob- 
structed by  opposition  majorities  in  one  or  the  other 
branch  of  Congress,  by  dissension  in  the  Administra- 
tion party,  or  by  the  popular  discontent  arising  from 
hard  times.  The  Hayes  Administration  had  to  meet 
all  these  obstacles  at  once,  and  at  a  time  when  its 

*  Report  of  Treasurer  Spinner,  Annual  Treas.  Rep.,  1866,  p.  171. 

•  Letter  to  the  Senate,  March  26,  1879, 

'  Opinions  of  Attorney-General  Devens,  of  Comptroller  Knox,  of 
Geo.  S.  Coe  ;  Specie  Resumption,  pp.  117,  135,  136. 
3 


34  American  Finance  \wt^ 

own  official  prestige  was  marred  by  its  disputed 
title.  Whether  Mr.  Hayes  was  entitled  to  the  two 
doubtful  States  whose  votes  were  eventually  awarded 
to  him,  and  without  which  he  could  not  have  been 
elected,  is  a  question  regarding  which  opinion  will 
probably  always  differ.  The  elaborately  constructed 
Electoral  Commission,  to  whom  the  question  was 
referred,  divided  almost  exactly  on  the  lines  of  party 
affiliation.  But  that  the  actual  majority  of  the 
voters  was  against  Mr.  Hayes  in  1876,  and  in  favor 
of  Mr.  Tilden,  there  is  no  doubt  whatever.  The 
Republican  count  itself  awarded  to  Mr.  Tilden  a 
popular  plurality,  in  the  whole  United  States,  of 
252,224.  The  tangible  result  of  this  popular  minor- 
ity was  a  House  of  Representatives  containing  an 
opposition  plurality  of  twenty  votes. 

Nor  was  this  opposition  content  with  a  mere 
blockade  of  Administration  measures.  It  under- 
took to  wreck  the  entire  policy  of  the  President. 
The  Senate  was  Republican  by  a  plurality  of  three, 
but  on  questions  of  finance,  this  slender  plurality 
could  not  be  trusted.  The  first  year  of  the  new 
Administration  was  a  period  of  stagnant  trade  and 
popular  unrest ;  its  second  year  was  a  period  of  fall- 
ing prices.  The  Pittsburg  railway  riots,  which  rose 
for  a  time  to  the  proportions  of  industrial  insurrec- 
tion, broke  out  hardly  four  months  after  the  inaugu- 
ration of  President  Hayes.  Business  failures  were 
more  numerous  and  serious  in  1877  than  in  1874,  the 
increase  being  particularly  rapid  in  the  younger 
Western  States;  and  in  1878  the  record  of  insol- 
vencies far  exceeded  even  that  of  the  panic  year 


18771         Congress  Attacks  Resumption  35 

1873.'  Four  years  of  prostrated  enterprise  had  ut- 
terly discouraged  the  people;  when,  therefore,  politi- 
cians laid  the  blame  on  the  Treasury's  operations, 
they  had  no  trouble  in  getting  a  hearing.  The  oppo- 
sition to  Mr.  Sherman's  plans,  which  in  Tact  included 
many  well-known  Republican  Congressmen,  believed 
itself  to  be  backed  by  an  overwhelming  popular  sen- 
timent. It  therefore  laid  its  plans  deHberately  to 
upset  the  pending  negotiations. 

The  attack  began  with  a  bill  revoking  all  power 
of  bond-issues  for  resumption  purposes,  and  in  effect 
repealing  the  Resumption  Act.  This  measure  went 
through  the  House  in  November,  1877,  by  a  major- 
ity of  thirteen  votes.  Before  its  fate  in  the  Senate 
was  at  all  certain,  the  House  had  challenged  public 
attention  with  another  bill  to  open  the  mints  of  the 
United  States  to  the  free  coinage  of  silver.  This 
measure  was  not  entirely  new.  In  the  summer 
session  of  1876,  several  bills  had  been  introduced, 
providing  for  increased  silver  coinage  and  for  re- 
monetization  of  the  silver  dollar.  None  of  these 
propositions  came  to  anything;  they  were  chiefly 
remarkable  from  the  fact  that  they  first  gave  vogue 
to  the  theory  of  the  "  crime  of  1873  " — a  theory 
which  assumed  that  the  dropping  of  the  silver  dollar 
from  the  list  of  coins  in  the  statutes  of  that  year  was 
the  outcome  of  a  conspiracy  which  carried  its  legis- 
lation through  in  secret.  The  entire  baselessness  of 
this  assertion  has  been  demonstrated  often  enough 
and  in  convincing  detail ;  this  very  provision  regard- 
ing the  silver  dollar  was  a  subject  of  public  discussion 

•  Dun's  Review,  anmial  tables. 


36  American  Finance  tie?? 

in  the  House,  and  met  with  no  serious  opposition.' 
The  assertion  in  itself  is  so  patently  absurd  that  I 
shall  not  pause  to  discuss  it.  The  truth  is  that  silver 
in  1873,  and  during  a  generation  before  that  date, 
was  worth  more  to  its  owner  in  the  form  of  bullion 
than  in  the  form  of  coin.  In  1872  the  silver  requi- 
site to  coin  a  dollar  at  the  established  ratio  was  worth 
$1.02.'  For  years,  therefore,  nobody  thought  of 
bringing  his  silver  to  the  mint  for  coinage ;  he  sold 
it  in  the  commercial  markets.  As  we  have  seen,  the 
total  silver-dollar  coinage  of  the  United  States,  be- 
tween 1789  and  1873,  was  barely  eight  million  dollars, 
and  when,  in  1873,  the  law  provided  that  except  for 
the  so-called  trade  dollar  coined  for  export,  "  no 
deposit  of  silver  for  other  coinage  shall  be  received," 
no  one  had  interest  enough  in  the  matter  to  offer 
criticism.' 

But  in  1874  and  1875  came  one  of  those  curious 
coincidences  which  render  possible  for  all  time  con- 
flicting theories  of  an  economic  event.  Germany, 
having  adopted  the  gold  standard  of  currency  injuly, 
1873,  began  to  sell  its  old  silver  coin  as  bullion.  At 
exactly  the  same  time,  Mackay  and  Fair,  in  the 
heart  of  the  Nevada  Mountains,  were  opening  up 
the  Great  Bonanza.  The  Pacific  Coast  was  in  fact 
going  wild  over  the  rise  in  mining  shares  while  the 
East  was  financially  and  industrially  paralyzed.  For 
one  instance,  the  famous  Consolidated  Virginia  mine, 

'  White,  Money  and  Banking,  p.  213  ;  Laughlin,  Bimtiallitm^ 
p.  98  ;  Congressional  Globe,  April  g,  1872. 

*  U.  S.  Mint  Reports,  annual  tables, 

•  Trtas.  Rep,,  1878,  p.  xxiii, 


1877]  Agitation  for  Silver  37 

which  produced  in  1873  only  $645,000  of  silver  ore, 
turned  out  $16,000,000  in  1875.'  In  the  three  years 
following  1874,  the  two  mines  of  the  "  Comstock 
lode "  yielded  $42,000,000  silver.*  The  statute 
dropping  the  silver  dollar  from  this  country's  coin- 
age list  was  enacted  February  12,  1873 ;  the  German 
law  for  retirement  of  silver  coinage  was  adopted 
July  9,  1873;  and  a  year  later  the  news  of  the  rich 
Nevada  "  ore-finds  "  became  public  property.  Be- 
tween the  German  sales  and  the  sales  at  Nevada  City, 
the  price  of  silver  yielded.  In  1 874,  for  the  first  time 
in  a  generation,  412^  grains  of  standard  silver  would 
have  been  worth  more  when  coined  into  a  legal-tender 
dollar  than  when  sold  in  the  bullion  market.*  The 
motive  of  the  mining  interest  in  the  free-silver  coin- 
age agitation  of  1876  and  1877  was  not  mysterious. 
The  motive  of  the  anti-Administration  party  in 
Congress  was  somewhat  different.  There  is  not  the 
slightest  question  that  the  silver-coinage  movement, 
in  the  agricultural  West  particularly,  had  the  same 
origin  and  the  same  following  as  the  paper  inflation 
movement  of  a  few  years  before.  Mr.  Bland  him- 
self, the  author  of  the  silver  bill,  declared  that  the 
question  was  presented  as  between  what  he  called 
"  honest  resumption  "  with  silver  coinage,  "  or  on 
the  other  hand  a  forced  unlimited  inflation  of  paper 
money."  *  In  the  heat  of  debate  on  the  silver  bill, 
the  same  statesman  declared  in  Congress  that  if  his 

'  Shinn,  The  Story  of  the  Mine,  p,  191. 

•  Lindennann,  U.  S.  Mint  Report,  1877. 
»  Annual  Reports,  U.  S.  Mint. 

*  Congressional  Record,  Aug.  5,  1876* 


3$  American  Finance  [1878 

coinage  plan  could  not  be  passed,  he  was  "  in  favor 
of  issuing  paper  money  enough  to  stuff  down  the 
bond-holders  until  they  are  sick."  '  The  point  of 
these  remarks  lies  in  their  frank  assumption  that  Lhe 
free-silver  sentiment  and  the  fiat-money  sentiment 
were  interchangeable. 

So  much,  then,  for  the  origin  and  nature  of  the 
silver  movement.  The  Bland  Bill  passed  the  House 
on  November  5,  1877,  under  the  previous  question 
and  without  debate,  by  a  vote  of  164  to  34,  and  the 
resumption  operations  of  the  Government  came  to 
an  instant  halt.  The  market  price  of  silver  then  was 
such  that  the  legal-tender  dollar  of  the  Act  would 
have  been  worth  intrinsically  less  than  ninety  cents. 
Foreign  subscribers  to  our  resumption  bonds  sus- 
pected instantly  that  payment  of  the  Government 
debt  in  a  depreciated  coin  was  planned  by  Congress ; 
their  suspicions  were  confirmed  by  a  resolution  in- 
troduced December  6th  by  Stanley  Matthews,  Mr. 
Sherman's  own  successor  in  the  Senate,  and  passed 
by  both  Houses.  The  resolution  explicitly  declared 
that  in  the  opinion  of  Congress,  all  the  bonds  of  the 
United  States,  "  issued  or  authorized  to  be  issued," 
were  payable  in  the  silver  dollars  of  the  Bland  Law. 
The  extraordinary  character  of  this  resolution  may 
be  judged  from  the  fact  that  it  was  proposed  and 
passed  in  both  Houses  while  the  Coinage  Act  was 
still  pending,  and  while,  therefore,  there  was  not  in 
existence  the  coin  which  was  duly  declared  a  legal 
tender  for  settlement  with  public  creditors.*     To  the 

^  Congressional  Record,  February  21,  1878. 

'  Benjamin  H.  Hill,  Senate  speech,  January  25,  1878. 


1878]  The  Matthews  Resolution  39 

conservative  portion  of  the  public,  the  resolution 
seemed  a  piece  of  financial  lunacy ;  to  the  Treasury, 
it  was  not ,  only  embarrassing  but  humiliating. 
Hardly  a  month  before,  in  his  annual  report  to 
Congress,  the  Secretary  had  repeated  his  ofHcial 
statement,  previously  made  to  bond  subscribers, 
that  payment  of  the  bonds  in  gold  might  safely  be 
anticipated.'  The  publication  of  this  statement  in 
New  York  and  London  had  been  followed  by  greatly 
increased  subscriptions  to  the  bonds,  in  payment  of 
which  gold  was  required  by  the  Government.*  The 
Matthews  resolution  amounted,  so  far  as  Congress 
was  concerned,  to  repudiation  of  a  formal  bargain  of 
which  the  Government  had  already  obtained  the 
fruits.  The  debate  was  such  as  might  have  been 
expected  on  a  measure  of  the  sort.  It  centred  re- 
peatedly on  denunciation  of  Government  bond  in- 
vestors.* Foreign  subscribers  were  treated  with 
especial  scorn ;  indeed,  our  foreign  customers  in 
general  were  not  spared.  It  was  this  debate  which 
drew  forth  Senator  Matthews's  somewhat  celebrated 
query :  "  What  have  we  got  to  do  with  abroad  ?  " — 
a  remark  which  was  perhaps  as  typical  of  the  session's 
deliberations  as  any  utterance  made  from  the  floor 
of  Congress.* 

In  each  of  these  three  controversies  the  Adminis- 

'  Treas.  Rep.,  1877,  p.  iv. 

*  Sherman  to  F.  O.  French,  June  19,  1877 ;  Specie  Resumption, 
pp.  80,  81,  84,  91. 

*  Speech  of  D.  W.  Voorhees,  Senate,  January  15,  1878  ;  of  F.  M. 
Cockrell.  Senate,  January  23,  1878 ;  of  W.  H.  Felton,  Senate, 
November  14,  1877. 

*  Senate  speech,  December  10,  1877. 


40  American  Finance  [i878 

tration  was  deserted  by  a  good  part  of  its  natural 
supporters.  Twenty-seven  Republicans  voted  in 
the  House  for  the  virtual  repeal  of  the  Resumption 
Act.  Sixty-seven  out  of  the  164  votes  for  the  free- 
silver  coinage  bill  were  Republican.  The  Matthews 
resolution  was  not  only  proposed  by  a  Republican, 
but  Senators  and  Representatives  of  the  Adminis- 
tration party  took  the  floor  to  advocate  it.  Indeed, 
the  party  chaos  during  the  session  of  1877  and  1878, 
on  all  financial  questions,  can  find  no  parallel  short 
of  the  stormy  legislative  days  of  1894  and  1895. 
The  personality  of  debate  and  vote,  during  this 
earlier  upheaval,  is  extremely  curious.  The  vote  in 
the  House  of  Representatives,  for  instance,  on  the 
original  free-coinage  bill  of  1877,  was  non-partisan 
and  almost  wholly  sectional.  From  districts  west  or 
south  of  Pennsylvania,  only  six  votes  were  cast 
against  the  bill,  two  of  these  votes  being  cast  by 
Democrats ;  from  Pennsylvania  and  the  districts  east 
or  north  of  it,  the  bill  received  only  nine  supporting 
votes,  and  three  of  the  nine  votes  were  Republican. 
The  representatives  from  Ohio,  Indiana,  Illinois, 
Wisconsin,  Iowa,  Kansas,  California,  and  Minne- 
sota, so  far  as  they  answered  to  the  roll-call,  voted 
solidly  for  the  free-coinage  bill ;  the  New  England 
States  voted  solidly  against  it.  Not  least  remark- 
able, in  the  alignment  of  our  public  men  during  the 
session,  was  a  coincidence  which  made  the  proposed 
repeal  of  the  Resumption  Act  an  example  in  the 
irony  of  history.  The  Treasury  Secretary  whose 
authority  the  bill  assailed  had  in  1868  led  a  similar 
movement  to  break  down  the  Administration's  re- 


1878]  Passage  of  the  Bland  Bill  41 

sumption  plans.  The  future  Secretary  of  1894, 
destined  to  issue  under  the  Resumption  Act  more 
bonds  than  even  Secretary  Sherman,  sat  in  the 
House  in  1877  and  voted  to  revoke  the  power  of 
issue. 

The  situation;  during  the  early  months  of  1878, 
was  in  fact  extremely  critical.  For  the  time  the 
three  direct  assaults  on  the  public  credit  were  warded 
off.  The  Matthews  resolution  was  "  concurrent," 
and  hence  a  mere  expression  of  opinion  without 
binding  force.  The  bill  repealing  the  Resumption 
Act  of  1875  was  killed  by  disagreement  in  the 
Senate.  Meantime  the  Silver-Coinage  Act  was  modi- 
fied by  the  Senate  into  a  compromise  requiring  pur- 
chase and  coinage  by  the  Government  of  two  to 
four  millions'  worth  of  silver  monthly.  Even  thus 
modified,  it  encountered  the  veto  of  the  President, 
but  was  passed  over  his  veto,  without  a  day's  delay, 
by  the  requisite  two-thirds  majority.  Executive 
conservatism  seemed  to  be  fruitless;  nevertheless, 
there  is  no  doubt  whatever  that  the  steadfast  policy 
of  Mr.  Hayes  did  much  to  stem  the  current  of  reac- 
tion. Although  his  veto  did  not  prevent  enactment 
of  the  silver-coinage  policy,  his  Annual  Message  of 
December  3,  1877,  submitted  when  Congressional 
majorities  were  not  yet  defined,  so  plainly  intimated 
veto  that  it  obstructed  efforts  to  force  the  absolute 
free-coinage  measure  through  the  Senate.  The 
President's  services  certainly  do  not  merit  less  of 
recognition,  from  the  fact  that  his  Secretary  of  the 
Treasury  gave  him  at  this  point  only  nominal  sup- 
port.    For  once  at  least  in  his  executive  career,  Mr. 


42  American  Finance  [1878 

Sherman's  comment  on  the  reactionary  policy,  even 
before  the  Allison  substitute  bill  had  been  framed, 
was  as  faltering  in  its  tone,  and  as  thoroughly  im- 
bued with  timid  compromise,  as  if  its  author  was 
again  the  Sherman  of  the  Senate.'  A  personal 
letter  of  the  Secretary,  in  September,  1877,  to  the 
author  of  the  Matthews  resolution,  contains  the 
most  extraordinary  quibbling  with  the  question.* 
Mr.  Sherman  himself  confessed,  seventeen  years 
after  the  struggle  of  1878,  that  the  veto  message  did 
not  meet  with  his  approval.* 

Congress  adjourned  on  June  19th.  Even  before 
Congressional  adjournment,  the  canvass  for  the 
November  State  elections  had  begun.  The  State 
Convention  platforms,  in  the  summer  of  1878,  were 
not  in  all  respects  such  as  the  session's  work  in 
Congress  would  have  suggested.  It  is  true,  the 
Democrats  throughout  the  West  and  South  went  to 
extremes  in  denouncing  the  Administration's  policy. 
The  Ohio  Democrats,  for  instance,  demanded  "  ab- 
solute repeal  of  the  Resumption  Act,"  "  removal  of 
all  restrictions  to  the  coinage  of  silver,"  and  "  sub- 
stitution of  United  States  legal-tender  money  for 
national  bank  notes,"  *  and  Democratic  Conventions 
in  Indiana,  in  Iowa,  and  in  most  other  Western  and 
Southern  States,  made  exactly  similar  declarations. 
The  policy  set  forth  by  the  Ohio  Democrats  was 

*  Treas.  Rep.,  1877,  p.  xxi. 

*  Letter  to  Stanley  Matthews,  September  il,  1877 ;  XecoUetHotu, 

i.,  593- 

*  Recolltctions,  ii..  623. 

*  Ohio  Democratic  Convention  of  June  36. 


1878]  Party  Conventions  43 

certainly  no  more  reactionary  than  what  had  been 
proclaimed  that  very  season  on  the  floor  of  Congress, 
and  by  eminent  Republicans.*  It  was  the  policy 
which  the  majority  of  public  men,  in  both  parties, 
had  indicated,  two  or  three  months  before,  as  certain 
of  popular  endorsement.  But  the  Republican  Con- 
vention leaders,  in  Ohio  and  in  other  Western  States, 
were  shrewder.  Signs  of  protest  against  the  anti- 
Administration  Republicans  in  Congress,  more  omin- 
ous because  they  came  from  staunch  and  life-long 
supporters  of  the  party,  were  visible  even  before 
Congress  adjourned.  The  great  business  communi- 
ties were  speaking  out  with  considerable  emphasis, 
and  this  indication  was  not  lost  on  the  Republican 
managers.  With  much  political  adroitness,  the 
Western  Conventions  of  the  party  based  their  chief 
appeal  on  "  opposition  to  further  financial  agita- 
tion," as  "  injurious  to  business  and  devoid  of  other 
than  evil  results."'  Republican  platforms  in  the 
Eastern  States  were  even  more  distinct  in  declaring 
for  the  Administration's  policy ;  endorsement  of  the 
specie-resumption  plan,  for  instance,  as  carried  out 
by  Secretary  Sherman,  was  voted  without  a  qualify- 
ing word. 

The  trend  of  public  sentiment,  in  fact,  very  soon 
showed  itself  to  be  unmistakably  in  that  direction, 
and  this  was  shown  by  the  altered  tone  of  the  oppo- 

*  W.  D.  Kelley,  House  of  Representatives,  November  3,  1877; 
J.  J.  Ingalls,  Senate,  December  6,  1877 ;  W.  A.  Wallace,  Senate, 
January  29,  1878  ;  T.  O.  Howe,  Senate,  February  5,  1878. 

*  Platforms  of  the  Indiana  and  Ohio  Republican  Conventions,  June 
S  and  12,  1878. 


44  American  Finance  11878 

sition  Convention  platforms,  in  the  fall.  Some  of 
these  platforms  made  obvious  attempts  to  square 
their  party  with  the  voters.  The  financial  plank  of 
the  New  York  Democratic  Convention,  for  instance, 
on  September  25th,  reads  like  actual  endorsement 
of  the  Republican  Administration.  It  was  too  late, 
however,  for  such  manoeuvres  to  be  of  any  value. 
The  opposition  had  gone  too  far  in  Congress,  and 
popular  opinion  to  that  effect  was  expressed  with 
sufficient  emphasis  in  November,  1878.  The  Ad- 
ministration party  gained  what  amounted  to  a  de- 
cided victory.  New  York,  Connecticut,  and  Ohio, 
which  had  been  carried  by  the  Democrats  in  1877, 
now  swung  back  to  the  Republicans,  New  York 
leading  with  a  majority  of  34,661.  In  1877,  the 
Democratic  party  had  captured  Pennsylvania  by 
nearly  10,000;  it  lost  the  State  now  by  upwards  of 
22,000.  The  opposition  still  retained  control  of  the 
House  of  Representatives,  but  by  a  reduced  plural- 
ity. There  were  but  four  States,  East  or  West, 
where  opposition  majorities  were  increased  in  1878 
or  Administration  majorities  diminished,  and  these 
were  agricultural  States,  where  the  season's  sharp 
decline  in  wheat  had  stirred  up  discontent. 

There  was  not  much  danger  from  the  closing 
session  of  a  Congress  whose  earlier  ventures  had  re- 
ceived this  response  from  the  people.  Without  in- 
terruption or  annoyance  from  the  legislative  body, 
the  Secretary  of  the  Treasury  now  put  the  final 
touches  on  his  arrangements  for  resumption.  Partly 
by  accident  and  partly  through  stress  of  circum- 
stances, the  Treasury  gold  reserve  was  defined,  in 


18781  The  ElecHons^  of  1878  45 

later  years,  at  a  fixed  and  arbitrary  minimum.  The 
theory  adopted  by  Mr.  Sherman,  however,  in  his 
early  operations,  was  different  and  undoubtedly 
better.  Following  probably  the  practice  of  the 
Bank  of  England,  he  fixed  his  reserve  at  forty  per 
cent,  of  outstanding  notes — "  the  smallest  reserve," 
he  wrote  to  Congress,  "  upon  which  resumption 
could  be  prudently  commenced  and  successfully 
maintained."  '  On  this  basis  he  held  in  the  Treas- 
ury, on  December  31,  1878,  $114,193,000  gold  in 
excess  of  outstanding  gold  certificates,  which  was  a 
trifle  over  forty  per  cent,  of  the  Government  notes 
then  circulating  outside  the  Treasury."  Of  this  gold 
reserve,  $95,500,000  had  been  obtained  through  sale 
of  bonds,'  part  of  the  coin  being  procured  in  Europe. 
There  remained  now  to  be  settled  only  the  formal 
machinery  of  exchange  between  the  Treasury  and 
outside  institutions.  The  city  banks  were  naturally 
willing  to  lend  all  possible  aid  to  the  achievement. 
But  the  mere  good-will  of  the  banks  has  proved 
largely  useless  to  the  Treasury  on  two  not  at  all  dis- 
similar occasions — in  1861  and  in  1894 — and  at  both 
those  junctures  the  fault  distinctly  lay  in  lack  of 
timely  business  management  by  the  Treasury.  It 
is  conceivable  that  with  the  vacillating  policy  of 
those  two  years  applied  in  1878,  the  Government's 
financial  schemes  might  even  now  have  broken  down. 

'  Letter  to  President  of  the  Senate,  May  17,  1879;  inten  ew  with 
H.  R.  Banking  and  Currency  Committee,  April  18,  1878 ;  Recollec- 
tions ii,,  p.  631. 

'  Treasurer's  Annual  Report,  comparative  tables* 

•  Trecu.  Rep.,  1878,  p.  ix. 


46  American  Finance  [1878 

If,  for  example,  the  Treasury  had  left  the  banks  to 
pursue  unchanged  their  policy  of  keeping  special 
gold  deposits,  the  Government  reserve  would  have 
been  at  once  imperilled.  If  the  banks  had  con- 
tinued to  present  their  individual  drafts  for  redemp- 
tion across  the  counter  of  the  Sub-Treasury,  any 
timid  or  blundering  banker  might  have  started  a 
general  drain  of  gold.  Against  these  possibilities 
Mr.  Sherman  now  took  measures.  He  applied  for 
the  admission  of  the  New  York  Sub-Treasury  as  a 
member  of  the  clearing-house.  Nowadays,  when  the 
Government's  participation  in  this  privilege  has  be- 
come a  matter  of  every-day  routine,  it  is  easy  to 
underrate  the  work  of  the  Administration  which 
effected  it.  In  1878,  however,  the  project  was  both 
new  and  startling.  This  occasion,  it  is  true,  was  not 
the  first  on  which  the  clearing-house  proposition  had 
been  mooted.  But  the  previous  Administration 
which  considered  the  suggestion  had  abandoned  it.' 
Even  in  1878,  the  judgment  of  the  Secretary's  own 
associates  was  against  the  plan ' ;  nevertheless,  he 
brought  the  matter  to  a  head  with  business-like 
directness,  and  within  two  weeks  after  the  project 
was  officially  submitted,  arrangements  had  been 
made.  At  New  York  and  Boston,  the  clearing- 
houses modified  their  rules,  agreed  to  abolish  "  gold 
deposits  "  after  January  ist,  to  accept  the  legal 
tenders  freely  in  discharge  of  balances  against  one 

'  Letter  of  Assistant-Treasurer  Hillhouse ;  Specie  Resumption,  p. 
398. 

'  Letter  of  Assistant-Secretary  French,  November  5,  1878  ;  Specie 
Reiumption,  p.  396. 


1878]        Arrangements  for  Resumption  47 

another  and  against  the  Government,  and  to  admit 
the  New  York  Sub-Treasury  into  regular  member- 
ship.' At  the  same  time,  the  requirement  of  coin 
payment  of  customs  duties  was  revoked,  and  public 
officers  were  directed  to  receive  coin  or  legal  tenders 
at  the  payer's  option — a  move  of  obvious  propriety, 
since  refusal  to  take  notes  in  payment  would  merely 
send  the  importer  to  the  Treasury's  redemption 
office  to  convert  them  into  coin.*  All  these  prelim- 
inaries had  been  formally  and  positively  settled 
before  the  close  of  1878.  On  December  17th,  the 
premium  on  gold  disappeared,  for  the  first  time 
since  1861;  on  January  ist,  specie  payments  were 
quietly  resumed.  Whether  resumption  could  be 
maintained  without  fresh  purchases  of  gold,  without 
new  bond  issues,  and  without  recurrent  strain  on 
financial  confidence,  ^depended  on  influences  no 
longer  subject  to  the  Government's  control. 

'  Resolution  of  the  clearing-house  at  New  York,  November  I2, 
1878,  Specie  Resumption,  p.  401  ;  at  Boston,  November  15,  Specie 
Resumption,  p.  408. 

*  Treas.  Rep.,  1878,  pp.  xii.,  xiii,;  Treasury  circular  to  disbursing 
and  receiving  officers,  December  14,  1878. 


CHAPTER  III 

RESUMPTION  OF  SPECIE   PAYMENTS 

THE  danger  to  the  Treasury's  redemption  fund 
lay,  as  every  one  understood,  in  possible  gold 
exports.  As  it  happened,  there  was  no  gold  move- 
ment in  progress  at  the  time  of  specie  resumption; 
but  foreign  exchange  was  only  a  trifle  below  the 
normal  gold-exporting  point,  and  no  spring  season 
for  eighteen  years  had  passed  without  gold  ship- 
ments. In  the  first  half  of  1877,  nearly  twenty 
millions  gold  had  been  exported  from  New  York, 
chiefly  obtained  from  the  city  banks.  On  January 
I,  1879,  these  New  York  banks  held  in  specie  only 
$19,781,400,  but  they  held  twice  as  much  in  legal- 
tender  notes  redeemable  at  the  Treasury  in  gold. 
Supposing,  then,  a  further  rise  in  exchange  and  a 
heavy  export  of  gold,  there  was  not  the  least  doubt 
over  what  would  happen  to  the  Treasury  reserve. 

Now  it  is  true  that  every  bank  of  issue  is  con- 
fronted continually  with  this  possibility.  In  1878 
and  1879,  while  gold  exports  from  London  were  in 
progress,  the  exporters  carried  their  Bank  of  England 
notes  to  the  Bank  as  a  matter  of  course  for  redemp- 
tion in  gold,  and  shipped  the  gold.     What  was  true 


1879]  Dangers  to  Resumption  49 

of  the  London  gold  operations  then  is  true  to-day. 
But  the  Bank  of  England,  like  all  properly  managed 
banks  of  issue,  exercises  the  power  of  holding  back 
from  circulation  the  notes  redeemed,  whenever  its 
reserve  has  been  drawn  down  too  far.  This  prac- 
tice, in  the  case  of  the  Bank  of  England,  automati- 
cally checks  a  large  gold  export  movement,  through 
the  resultant  contraction  of  the  money  market.  So 
far  was  the  United  States  Treasury,  in  1879,  froin 
enjoying  any  such  precautionary  power,  that  it  was 
expressly  forbidden  to  hold  back  notes  after  redemp- 
tion.  As  originally  passed,  the  Resumption  Act 
was  ambiguous  on  this  question.  It  did  provide  for 
redemption  of  notes,  prior  to  1879,  "  until  there 
shall  be  outstanding  the  sum  of  three  hundred 
million  dollars  of  such  legal-tender  United  States 
notes,  and  no  more."  This  provision  obviously 
meant  cancellation  of  $82,000,000  out  of  the  $382,- 
000,000  existing  legal  tenders,  and  it  was  so  applied. 
But  the  question  of  retirement  was  purposely  left  in 
doubt  as  regarded  notes  redeemed  in  gold  after  re- 
sumption.* Before  even  the  notes  in  excess  of  $300,- 
000,000  had  been  retired,  moreover,  Congress  took 
the  matter  in  hand,  and  as  it  made  its  move  in  the 
midst  of  the  legislative  hurly-burly  of  1878,  its  pur- 
pose was  likely  to  be  plain  enough.  The  law  of  May 
31,1 878, declared  that  cancellation  of  the  notes  should 
cease  at  once.  The  amount  outstanding  was  then 
$346,681,000,  instead  of  the  $300,000,000  maximum 
fixed  by  the  Resumption  Act ;  and  to  this  extent 

^Recollections  of  John  Sherman,  i.,  sia;  John  Sherrnan^. Senate 

speech,  December  22,  i874«..    .     ...  ;.         ,,     ;.. 

4  ..•-.' 


50  American  Finance  n879 

the  Resumption  Law  was  positively  revoked.  It 
was  further  provided,  in  this  Act  of  1878,  that 
"  when  any  of  said  notes  may  be  redeemed  or  re- 
ceived into  the  Treasury  under  any  law,  from  any 
source  whatever,  and  shall  belong  to  the  United 
States,  they  shall  not  be  retired,  cancelled,  or  de- 
stroyed, but  they  shall  be  re-issued  and  paid  out 
again  and  kept  in  circulation." 

It  is  impossible  to  mistake  the  meaning  of  this 
provision.  It  not  only  fixed  the  minimum  of  legal- 
tender  notes,  but  expressly  forbade  the  Treasury  to 
exercise  any  power  of  even  temporary  contraction. 
Mr.  Sherman's  attitude  as  regards  this  measure  is 
difficult  to  understand.  He  openly  approved  the 
compulsory  re-issue  clause  of  the  Act  of  1878,'  and 
in  fact  admitted  that  he  had  himself  entertained 
some  purpose  of  the  kind.  He  was,  however,  too 
intelligent  a  financier  not  to  foresee  its  dangers,  and 
as  we  shall  presently  see,  these  dangers  were  seri- 
ously impressed  upon  him  by  certain  incidents  of  the 
resumption  year.  In  his  annual  report  of  Decem- 
ber, 1879,  h^  therefore  set  up  a  theory  of  his  own 
that  notes  redeemed  out  of  the  gold  reserve  could 
not  be  used  for  ordinary  purposes,  and  therefore, 
with  the  reserve  impaired,  were  not  subject  to  re- 
issue.* There  is,  unfortunately,  not  the  slightest 
ground  for  such  a  contention.  The  reader  must 
have  perceived  that  the  compulsory  re-issue  clause, 
cited  above  from  the  Act  of  1878,  is  framed  with 
particular  care  to  exclude  any  such  interpretation. 

'  RtcollecHoHi,  ii. ,  p.  659. 

*  Ttttu,  Rtp.,  1879,  P>  X-  ;  i88o>  1^>  >UL 


1879]  Discouraging  Trade  Outlook  5 1 

Mr.  Sherman's  assumption  in  his  report  of  1879  was 
as  unwarranted  as  his  criticism  of  a  later  Secretary 
of  the  Treasury  for  not  claiming  precisely  the  same 
discretionary  privilege.' 

The  ordinary  banking  safeguard,  then,  was  wholly 
withdrawn  from  the  Treasury.  Under  such  circum- 
stances, the  resumption  experiment  was  necessarily 
hazardous,  and  its  success,  even  in  its  first  year  of 
operation,  was  bound  to  depend  very  largely  on  the 
commercial  situation.  In  this  regard,  the  resump- 
tion year  did  not  begin  auspiciously.  In  1878,  the 
merchandise  trade  balance  in  favor  of  the  United 
States  had  been  very  large ;  in  the  first  five  months 
of  1879,  *t  decreased  steadily.  "  These  figures," 
wrote  a  commercial  firm  of  which  an  ex-Secretary 
of  the  Treasury  was  the  head,  "  indicate  the  begin- 
ning of  a  change  in  the  relative  volume  of  imports 
and  exports."*  Domestic  markets  were  unfavor- 
able. In  the  cotton-goods  industry,  demand  had 
slackened  so  far  that  wage  reductions  were  impend- 
ing.* The  iron  trade,  a  traditional  barometer  of 
industrial  situations,  opened  the  year  with  so  little 
activity  that  prices  fell  below  the  actual  average  cost 
of  production.*  With  hardly  an  exception,  the 
country's  staple'  industries  sank,  during  the  early 
months  of  1879,  i^ito  complete  stagnation.  Three 
months  after  resumption,  the  leading  financial  weekly 
of  New  York  remarked:  "  '  Where  is  the  prosperity 

'  Forum  for  April,  1896. 

•  Circular  of  McCuUoch  &  Co..  New  York,  May,  1879. 

•  Ellison  &  Co.'s  cotton  circular,  January,  1879. 

•  Annual  Report^  New  York  Chamber  of  Commerce,  1879,  p.  104. 


52  American  Finance  n879 

promised  with  that  event  ? '  is  the  question  fre- 
quently coming  to  us.  '  Wheat  is  no  higher.  Corn 
is  no  higher.  There  is  no  money  in  any  of  the 
earth's  products.  Where  is  the  promised  pros- 
perity ?'"  * 

It  is  true,  formal  resumption  of  specie  payments 
was  reflected,  in  the  home  security  markets,  by  a  re- 
covery in  prices.  This  recovery,  though  extremely 
irregular,  was  permanent.  But  foreign  capital  gave 
no  assistance  to  the  movement ;  on  the  contrary,  the 
higher  range  of  domestic  prices  served  to  stimulate 
sales  for  European  account,  and  there  was  abundant 
opportunity  for  such  sales  because  of  the  very  large 
amounts  of  United  States  Government  bonds  floated 
abroad  during  1877  and  1878.  In  February,  1879, 
the  London  agent  of  the  Treasury  reported  that, 
since  the  opening  of  the  year,  $43,000,000  of  these 
bonds,  and  $7,000,000  of  a  single  American  railway 
stock,  had  been  re-sold  by  London  to  the  United 
States.*  These  sales  were  reflected  in  a  rise  of 
foreign  exchange  almost  to  the  normal  gold-export 
level.*  In  London,  the  most  experienced  inter- 
national bankers,  including  the  Rothschilds,  who 
had  placed  the  bulk  of  the  recent  American  loans, 
predicted  that  gold  was  about  to  move  in  quantity 
from  the  United  States  to  Europe.*  By  the  middle 
of  March,  the  Secretary  was  disturbed  enough  to  set 

•  New  York  Financial  Chronicle,  March  8,  1879. 

•  London  correspondence  of  Treasury,  February  22,  1879  ;  Specie 
Resumption,  p.  525. 

•  Fry  to  Sherman,  January  13,  1879  ;  Specie  Resumption,  p.  461. 

•  Treasury's  London  correspondence,   February  22 ;    Specie  Re* 
sumption,  pp.  5*5,  536,  723. 


18791  European  Crop  Failure  53 

on  foot  inquiry  into  the  possibility  of  controlling 
specie  exports  through  sales  of  Government  ex- 
change. Such  recourse,  Mr.  Sherman  plainly  in- 
timated, might  become  necessary  "  in  preventing 
popular  alarm."  *  Not  even  this  expedient  was 
feasible ;  sterling  continued  to  advance,  and  finally, 
in  the  second  week  of  June,  a  million  and  a  quarter 
gold  was  shipped.  This  gold  was  obtained  from  the 
Treasury  in  exchange  for  notes ;  it  reduced  to  pre- 
cisely that  extent  the  Government  reserve.*  London 
financial  judgment  of  the  time  was  thus  expressed : 
"  The  effect  of  resumption  has  passed  off,  and  we 
may  expect  to  find  gold  steadily  drifting  from  that 
side  to  this. "  • 

The  wheat  harvest  of  1878,  in  England  and  on  the 
European  continent,  had  been,  as  we  have  seen,  one 
of  the  largest  on  record.  When  1 879  was  well  ad- 
vanced, wheat  from  the  English  farms  was  still 
moving  in  quantity  to  storage-points.  At  the  close 
of  March,  the  stock  of  wheat  at  Liverpool  was 
larger  than  at  any  time  within  five  years ;  the  same 
was  true  of  every  cereal  product.*  Frosty  weather 
and  heavy  rains  in  England  had  indeed  advanced 
the  price  of  wheat  sixpence  a  bushel,  and  it  was 
then  admitted  that  the  English  crop  of  1878  would 
not  be  duplicated.  Mit  meantime  the  reserved 
supply  was  ample,  demand  from  consumers  was  only 

'  Sherman  to  Conant,  March  15  ;  Conant  to  Sherman,  April  3; 
Specie  Resumption,  pp.  569,  602. 

•  Treas.  Rep.,  1879,  p.  338. 

•  London  Statist,  June  7,  1879. 

•  Annual  Report,  New  York  Produce  Exchange,  1879,  p.  447. 


54  American  Finance  [i879 

moderate,  and  early  in  March  observers  of  the 
market  predicted  that  prices  had  reached  their  high 
level  for  the  year.'  This  forecast  seemed  for  some 
time  to  be  correct.  Wheat  had  advanced  nine  cents 
per  bushel  on  the  New  York  market  since  the  open- 
ing of  January;  the  price  now  fell  from  $1.17^  in 
March  to  $1. 10  in  the  second  week  of  April. 

Little  by  little  the  foreign  situation  changed.  As 
is  usual  with  highly  speculative  markets,  the  news 
was  contradictory,  and  the  truth  developed  slowly. 
But  it  was  evident  in  May,  while  the  outlook  for 
this  country's  harvest  was  steadily  improving,  that 
the  European  grain  markets  were  beginning  to  stir 
with  apprehension.  In  France,  snow  fell  heavily 
late  in  the  spring ;  in  England,  after  a  late  and  de- 
structive frost,  rain  set  in  and  continued  almost  in- 
cessantly through  the  summer.  It  was  literally  a 
sunless  season.  At  the  opening  of  July,  people 
were  wearing  heavy  overcoats  in  London,  and  in  the 
country  all  the  crops  were  moulding.*  By  this  time 
the  impending  harvest  failure  had  begun  to  assume 
the  dimensions  of  a  national  calamity.  On  Sunday, 
July  6th,  by  the  Archbishop  of  Canterbury's  direc- 
tion, prayers  for  fair  weather  were  offered  in  the 
English  churches.'  In  another  month  the  time  was 
past  when  even  favorable  weather  would  help,  and 
by  August  it  was  made  clear  to  all  the  markets  that, 
while   the   United  States  would  yield  the  largest 

•  London  con'es)>pndence,  New  York  Financial  Chronicle,  March  7, 
1879.  *Ibid.,  July  II,  1879. 

*  Treasury's  Loiu<on  correspondence,  July  12  ;  Specie  Resumption., 
P-  739. 


1879]         The  Great  American  Harvest  55 

harvest  in  its  history,  every  growing  crop  in  the 
British  Islands  was  practically  ruined.  No  such  dis- 
aster had  befallen  English  agriculture  within  the 
memory  of  living  men.'  The  actual  decrease  in  the 
wheat  crop  especially,  as  compared  with  1878,  was 
fifty-four  per  cent. ;  the  total  yield  was  smaller  by 
thirty  million  bushels  than  in  the  leanest  recorded 
year  since  the  middle  of  the  century.'  Nor  was  this 
Europe's  only  agricultural  catastrophe.  Until  mid- 
summer, there  had  been  favorable  news  from  the 
continental  crops.  But  the  blight  which  fell  on 
England's  harvest — the  sunless  July  with  its  succes- 
sion of  soaking  rain-storms — did  equal  damage  be- 
yond the  Channel.  France,  Austria,  Germany,  and 
Russia  yielded,  in  1879,  ^^^  smallest  and  poorest 
wheat  crops  in  ten  years;  the  whole  continental 
harvest  fell  off  fifteen  per  cent,  from  the  average  of 
the  three  preceding  years.*  European  states,  which 
usually  exported  wheat,  had  not  raised  enough  to 
feed  their  own  people.  "  It  is  the  American  supply 
alone,"  one  contemporary  critic  wrote,  "  which  has 
saved  Europe  from  a  great  famine."  * 

To  the  United  States,  the  huge  American  grain 
crop  of  1879  w^s  a  double  stroke  of  fortune.  In  Eng- 
land, it  stopped  the  mouths  of  Mr.  Chaplin  and  the 
protectionist  reactionaries,  who  had  begun  to  clamor 
against  the  free  right  of  entry  to  American  export 
grain.  In  the  United  States,  it  settled  the  question 
of  resumption.     All  circumstances  seemed  to  con- 

'  Mark  Lane  Express,  London,  January  5,  1880. 

»  Gatette  tables.  '  Bulletin  des  Halles,  Paris,  January,  l88a 

•  iK>Qdon  Economist y  November  33,  1879. 


56  American  Finance  11879 

spire  in  favor  of  this  country.  Sunny  and  favorable 
"  farmer's  weather,"  with  the  due  proportion  of 
rains,  prevailed  throughout  the  season.  The  wheat 
fields  under  cultivation  had  increased  over  1878  by 
half  a  million  acres,  the  average  yield  per  acre  has 
never  but  twice  been  surpassed  in  this  country,  and 
the  total  crop  exceeded  by  28,000,000  bushels  the 
crop  of  any  previous  year.'  Until  midsummer,  as 
we  have  seen,  prices  for  wheat  had  moved  irregu- 
larly; even  in  July  and  August,  the  market  broke 
no  less  than  twenty  cents  a  bushel,  wholly  because 
of  the  certainty  of  an  exceptionally  large  American 
harvest.  But  the  positive  news  of  Great  Britain's 
crop  failure  carried  the  price  up  no  less  than  forty 
cents  a  bushel  within  six  weeks.*  Along  with  this 
advance  in  prices,  exports  of  wheat  rose  to  wholly 
unprecedented  volume.  The  foreign  buying  was  so 
urgent  that  the  country's  wheat  shipments,  which 
even  in  1878  did  not  run  beyond  two  million  bushels 
weekly,  averaged,  in  September,  1879,  ^  million 
bushels  daily,*  a  volume  of  grain  exports  equalled 
only  twice  in  the  country's  subsequent  history.  The 
crop  of  Indian  corn  was  the  largest  on  record;  this, 
too,  found  a  ready  and  profitable  export  market 
Cattle  raised  on  the  interior  farms  were  sent  abroad 
in  such  numbers  that  the  foreign  trade  complained 
that  British  graziers  were  being  forced  out  of  the 
British  market.*     By  a  rather  remarkable  coinci- 

'  Annual  Reports,  U.  S.  Department  of  Agriculture. 

•New  York  Produce  Exchange,  Annual  Report^  1879,  p.  395, 

*  Financial  Chronicle,  October  4,  1879. 

*  Glasgow  Herald,  November,  1879. 


18791  Gold  Imports  from  Europe  57 

dence,  the  famous  tide-water  pipe-line  from  the 
Pennsylvania  oil-wells  was  completed  in  1879,  ^^^ 
the  year's  export  of  this  product  rose  nearly  two 
million  barrels  over  the  highest  previous  record.' 
By  another  coincidence,  equally  independent  of  any 
events  already  noticed,  the  cotton  crop  of  India  in 
1879  was  a  partial  failure";  Europe's  supply  on  hand 
fell  off  thirty  per  cent,  from  the  autumn  stock  of 

1878  and  fifty  per  cent.  from.  1877,  and  with  the 
consequent  heavy  purchases  by  foreign  spinners,  the 
season's  export  of  American  cotton  was  the  largest 
ever  yet  recorded. 

The  first  result  of  this  sudden  change  in  the  situ- 
ation was  a  fall  in  the  foreign  exchanges,  and  conse- 
quent dissipation  of  all  fears  that  the  resumption 
fund  would  be  impaired.  With  this  menace  removed 
from  the  financial  outlook,  the  country's  torpid  en- 
terprise awoke.  The  trade  revival  which  ensued  was 
without  question  the  most  remarkable  in  this 
country's  commercial  history.  In  the  entire  range 
of  American  industries,  there  was  practically  no  ex- 
ception to  the  movement.  In  the  iron  trade,  con- 
sumption, which  had  been  cramped  and  paralyzed 
for  half  a  dozen  years,  and  which  at  the  opening  of 

1879  w«^  ^ot  large  enough  to  move  the  surplus 
stocks,  had  by  December  run  so  far  beyond  capacity 
for  immediate  production  as  to  yield  a  profit  of  one 
hundred  per  cent,  on  current  rates  of  cost.* 

In  spite  of  the  rise  in  raw  cotton,  the  spinning  in- 

^  Annual  Report,  New  York  Chamber  of  Commerce,  1879,  p.  50. 

•  New  York  Financial  Chronicle,  September  27,  1879. 

•  Annual  Repot t^  New  York  Chamber  of  Commerce,  1879,  p.  104. 


58  American  Finance  [i879 

dustry,  whose  depressed  condition  at  the  opening  of 
the  year  has  been  noticed  already,  enjoyed  its  full 
share  of  the  trade  revival.  Print  cloths,  the  staple 
of  the  dry-goods  trade,  not  only  advanced  fifty  per 
cent,  over  their  price  of  January  ist,  but  closed  the 
year  with  stocks  depleted,  mills  running  at  full 
pressure,  and  large  orders  booked  ahead.'  This  was 
the  story  in  almost  every  trade.  By  August,  the 
money  market  rose  sharply  under  the  heavy  demand 
for  this  expanding  trade,  and  import  of  gold  began 
in  quantities  vastly  beyond  what  had  ever  been  wit- 
nessed in  the  previous  trade  history  of  the  United 
States.  Within  three  months,  $20,000,000  had 
come  from  Great  Britain,  $30,000,000  from  France, 
and  $10,000,000  from  Germany;  and  as  the  special 
need  of  the  American  bankers  was  currency  suitable 
for  use  in  interior  trade,  a  large  part  of  this  specie 
went  directly  into  the  Treasury  in  exchange  for 
legal-tender  notes — another  wholly  new  phenome- 
non, impossible  except  under  resumption. 

On  January  ist,  as  we  have  seen,  only  one  third 
of  the  cash  reserves  of  New  York  banks  was  specie, 
and  the  aggregate  thus  held  was  only  $19,494,700. 
On  December  12th,  they  held  $53,157,700  specie, 
and  this  was  nearly  eighty  per  cent,  of  the  total  cash 
reserve.*  In  the  early  months  of  1879,  almost  the 
whole  of  the  customs  payments  at  New  York  were 
made  in  legal  tenders;  in  November  and  December, 
upwards  of  sixty-six  per  cent,  were  made  in  gold.* 

'  Annual  Report,  New  York  Chamber  of  Commerce,  1879,  P-  'O**- 

•  New  York  Clearing-House  statements, 

•  Records  of  the  Treasury, 


18791  Excesses  of  the  Speculators  59 

The  Government's  gold  reserve  accordingly  rose 
from  $119,956,655  at  the  close  of  June  to  $157,140,- 
1 14  at  the  opening  of  November.  As  early  as  Sep- 
tember, Secretary  Sherman  notified  agents  of  the 
Treasury  that  "  gold  coin,  beyond  the  needs  of  the 
Government,  having  accumulated  in  the  Treasury," 
they  were  thenceforward  to  pay  out  gold  freely  on 
ordinary  disbursements.' 

The  industrial,  social,  and  political  results  of  this 
extraordinary  year  were  permanent  and  far-reaching. 
The  series  of  commercial  windfalls  which  gave  the 
United  States  the  upper  hand  in  half  the  foreign 
markets  came,  as  we  have  seen,  on  top  of  a  five-year 
period  of  economy  and  liquidation ;  there  was,  there- 
fore, a  firm  substratum  on  which  to  build.  Enough 
of  an  impulse  was  given  to  industry  to  have  carried 
forward  the  movement  of  prosperity  beyond  1879, 
even  if  succeeding  years  had  not  been  equally  favor- 
able to  our  producing  markets.  But  the  good  for- 
tune of  the  American  farmers  did  not  end  with  1879. 
Conforming  to  a  principle  old  as  the  days  of  Pharaoh, 
Europe  passed  through  a  series  of  lean  years,  of 
which  1879  w^s  only  the  first.  The  disastrous 
foreign  shortage  of  that  year  was  not  indeed  re- 
peated, but  the  European  harvests  did  not  soon 
duplicate  the  yield  of  1878  again.  In  1880  the  out- 
put of  the  world's  chief  wheat-producers  rose  some 
30,000,000  bushels  over  that  of  1878  *;  but  this  was 
solely  because  of  a  seventy-million  bushel  increase 
in  the  American  harvest ;  so  that  this  country  still 

'  Circular  to  disbursing  officers  ;  Specie  Resumption,  p.  780. 
•  Liverpool  Corn  lYade  News  ^timates. 


6o  American  Finance  [iseo 

had  the  advantage  in  the  foreign  trade.  Even  in 
1 88 1,  when  a  good  part  of  the  American  crop  was 
destroyed  by  drought,  the  foreign  harvest  too  ran 
short,  and  what  our  farmers  could  spare  for  export 
was  sold  at  the  highest  prices  in  nine  years. 

The  prosperity  enjoyed  by  the  United  States  was 
real,  and  its  foundation  solid ;  a  fact  which  nothing 
proved  more  clearly  than  the  manner  in  which  the 
markets  sustained  reactions  from  excessive  specula- 
tion. With  all  the  increase  in  real  capital  and  in 
commercial  demand,  the  speculators  forced  prices 
repeatedly  beyond  the  ability  of  capital  to  sustain 
or  of  demand  to  meet.  Had  it  not  been  for  the 
solid  foundation  underlying  the  trade  revival  of 
1879,  they  would  have  wrecked  the  movement. 
They  began  with  an  attempt,  in  the  winter  months, 
to  make  their  own  price  for  wheat,  and  did  succeed 
in  forcing  the  market  up  to  such  a  figure  that  for  a 
time  exports  were  actually  blocked,  and  a  fleet  of 
grain  vessels,  sent  to  New  York  for  charters,  lay 
idle  for  weeks  at  the  city  wharves.*  The  result  of 
this  experiment  was  a  demoralized  wheat  market, 
and  eventually,  in  the  early  part  of  1880,  a  break 
of  thirty-four  cents  a  bushel.  In  the  iron  market  a 
similar  attempt  was  made.  The  price  at  the  close 
of  1879,  after  a  rise  of  nearly  one  hundred  per  cent, 
in  eight  months,  was  $35  per  ton;  the  speculators 
put  it  up  to  $42  by  February,  1 880,  and  by  so  doing 
attracted  from  every  iron-producing  foreign  state  not 
only  huge  supplies  of  new  material,  but  of  old  scrap- 

^  New  York  Chamber  of  Commerce,  Annual  Report,  1880-81, 
p.  85. 


18801  The  Railway  Speculation  6i 

iron.'     Of  course  this  bubble  too  collapsed ;  by  June, 
the  price  had  fallen  to  $23. 

But  after  each  of  these  speculative  collapses,  with 
the  individual  disasters  which  attended  them,  the 
underlying  strength  and  healthf  ulness  of  the  markets 
was  asserted.  The  spectacular  market  for  corpora- 
tion shares  was  in  a  high  degree  typical  of  the 
general  situation.  This  market  broke  sharply  in 
November,  1879;  ''^  May  and  June  of  1880,  what 
seemed  to  be  a  sudden  and  wholesale  wreck  of 
values  swept  over  the  Stock  Exchange.  But  from 
each  of  these  reactions,  which  measured  the  previous 
excesses  of  the  speculators,  values  recovered  and 
moved  up  again  under  the  stimulus  of  real  invest- 
ment, reaching  eventually  a  much  higher  level.  The 
movement  of  the  railway  shares  responded  normally 
to  the  immense  increase  in  opportunities  and  profits 
for  these  enterprises,  as  the  interior  lands  were 
opened  up.  Not  even  during  the  development  of 
the  Western  States  after  the  war  did  population  of 
these  districts  in  particular,  and  of  the  country  as  a 
whole,  increase  as  rapidly  as  it  did  after  resumption. 
Annual  immigration  doubled  in  1880  as  compared 
with  1879,  ^"d  quadrupled  in  the  next  two  years. 
The  highest  annual  record  in  the  country's  previous 
history  was  459,803,  in  the  twelve  months  before  the 
panic  of  1873.  In  1882,  the  immigration  was  788,- 
992,  a  total  which  has  never  since  been  equalled, 
and  nearly  one  third  of  that  year's  immigrants  were 
Germans,  the  most  useful  of  all  our  foreign  popula- 
tion. 

•  New  York  Chamber  of  Commerce,  Annual  Report,  1880-81,  p.  99. 


$2  American  Finance  [taso 

This  rapid  interior  development  gave  legitimate 
opportunity  for  extension  of  the  transportation  in- 
dustry, and  prompt  use  was  made  of  it.  Unfortu- 
nately, the  spirit  of  speculation  which  pervaded  all 
other  markets  governed  the  railway  market  also,  and 
though  it  served  at  the  time  only  to  emphasize  the 
seemingly  irresistible  movement  of  prosperity,  its 
permanent  results  were  mischievous  in  the  extreme, 
and  will  be  found  playing  an  important  part  in 
episodes  which  we  shall  review  later.  The  seeds  of 
so  many  future  disasters  to  this  important  industry 
were  sown  in  the  resumption  period  that  it  will  be 
advisable  to  not;ce  here  exactly  what  happened  at 
this  epoch  of  its  history.  The  performances  of  1868 
in  the  railway  market  were  not,  to  be  sure,  repeated. 
The  open  robbery,  the  fraudulent  stock  issues,  and 
the  judicial  corruption  which  marked  the  earlier 
history  of  the  Erie,  for  instance,  had  disappeared 
with  the  other  appurtenances  of  the  vulgar  inflation 
period.  They  were  replaced,  however,  by  another 
form  of  plunder  on  a  larger  scale.  The  combination 
of  scattered  railways,  covering  half  a  dozen  interior 
States,  into  systems  under  single  managements,  was 
a  normal  and  necessary  outgrowth  of  the  new  expan- 
sion of  the  West.  In  many  instances  it  was  wisely 
and  prudently  managed.  But  with  the  prevalent 
spirit  of  speculation,  it  gave  almost  boundless  oppor- 
tunities to  shrewd  and  unscrupulous  capitalists  with 
one  hand  on  the  Western  railway  coalitions  and  the 
other  in  the  stock  market. 

Most  unfortunately  for  the  transportation  indus- 
try, the  leader  in  the  movement  was  Jay  Gould,  whose 


1880]  Gould  and  his  Methods  63 

disreputable  record  in  the  railway  and  gold  markets 
of  the  inflation  period  made  his  appearance  in  the 
field  after  resumption  sufficiently  ominous.  Few 
properties  on  which  this  man  laid  his  hand  escaped 
ruin  in  the  end.  He  mastered  more  completely 
than  any  other  promoter  in  our  history  the  art  of 
buying  worthless  railways  for  a  song,  selling  them 
at  fancy  figures  to  a  solvent  corporation  under  his 
own  control,  and  then  so  straining  the  credit  and 
manipulating  the  books  of  the  amalgamated  com- 
pany as  to  secure  his  own  safe  retreat  through  the 
stock  market.  He  was  not  a  builder,  he  was  a  de- 
stroyer, and  the  truth  of  this  statement  may  be  easily 
demonstrated  by  tracing  out  the  subsequent  history 
of  the  corporations  which  he  got  into  his  clutches. 
That  Gould  had  a  genius  for  making  combinations 
is  unquestionable ;  but  in  almost  every  instance — the 
Wabash  Railway,  the  Union  Pacific,  the  Missouri 
Pacific,  and  the  elevated  railways  of  New  York  City 
are  notable  examples — he  obtained  this  power  by 
tempting  other  men  to  join  him  in  a  speculation  for 
personal  profit  acquired  through  methods  which 
sapped  the  financial  resources  of  the  properties  con- 
cerned. In  some  properties,  as  with  the  Western 
Union  Telegraph,  he  forced  a  reputable  concern  to 
admit  him  to  partnership  through  the  shrewd  and 
daring  use  of  a  species  of  corporation  blackmail,  in 
which  he  was  always  an  adept.  His  favorite  method 
of  operation  was  exemplified  in  the  purchase  of  the 
Kansas  Pacific  in  1880  by  the  Union  Pacific  on  the 
basis  of  new  Union  Pacific  stock  exchanged  on  equal 
terms  for  shares  of  the  smaller  company,  notwith- 


64  A merican  Finance  naso 

standing  the  fact  that  Kansas  Pacific  stock  was  earn- 
ing nothing  while  Union  Pacific  was  earning  and  pay- 
ing six  per  cent,  per  annum.  Gould  and  his  confed- 
erates of  course  played  this  particular  game  through 
the  stock  market,  where  it  was  easily  possible  for  any 
one  aware  of  the  purposes  of  the  two  companies  to 
buy  Kansas  Pacific  stock  at  nominal  figures  and  sell  it 
out  in  the  advance  accompanying  the  announcement 
of  the  combination.  At  the  close  of  1880,  it  was 
possible  to  say  that  Jay  Gould  controlled  every  im- 
portant through  railway  route  west  and  southwest 
of  St.  Louis,  except  the  Atchison,  Topeka,  and 
Santa  F6  and  the  Atlantic  and  Pacific*  The  oppor- 
tunities for  mischief  of  this  kind,  with  such  power  in 
the  hands  of  such  a  man,  were  almost  unlimited. 

The  reckoning  for  all  this  chapter  of  railway 
plunder  came  in  1893,  when  the  extraordinary  list 
of  railway  bankruptcies  cannot  easily  be  explained 
without  tracing  the  history  of  the  companies  back 
to  1880.  For  other  companies  were  bound  to  imi- 
tate the  methods  of  this  arch-plotter;  going  so 
far,  in  one  notorious  instance,  as  to  sell  to  share- 
holders a  new  issue  of  six-per-cent.  thirty-year 
bonds  at  twenty  cents  on  the  dollar,  when  the  shares 
themselves  were  selling  between  80  and  par.  Yet 
the  extent  to  which  all  these  companies  continued 
to  prosper  and  profit  under  this  load  of  improperly 
incurred  liabilities  was  perhaps  the  strongest  of  all 
testimony  to  the  soundness  of  the  trade  revival. 
The  Chicago,  Rock  Island,  and  Pacific  company,  foi" 
instance,  doubled  its  stock  in  1880  through  a  "  scrip 

>  New^Vo^  Finandal  ChronicU,  Januarjr  8,  l88x. 


18801  Politics  of  Resumption  Year  65 

dividend  "  of  one  hundred  per  cent.,  and  continued 
to  pay  seven  per  cent,  per  annum  on  its  doubled 
stock;  the  Louisville  and  Nashville  paid  six,  after 
a  similar  increase  ;  the  Chicago,  Burlington,  and 
Quincy,  after  a  twenty-per-cent.  "  stock  dividend," 
paid  eight  per  cent.  Actual  increase  in  the  total 
stock  and  bonds  of  railways  in  the  United  States, 
during  1880,  was  $524,411,843  ;  but  net  earnings 
increased  no  less  than  $39,000,000.' 

What  was  true  of  railway  profits  was  true  also  in 
other  lines  of  trade,  and  1880  was  undoubtedly  the 
most  prosperous  year  of  the  generation.  This  may 
be  fairly  judged  by  that  faithful  index,  the  record 
of  business  failures.  In  1878,  there  were  10,478 
such  commercial  deaths;  in  1880,  there  were  only 
4735.  The  liabilities  involved  fell  from  $234,383,- 
000  in  1878  to  $65,752,000  in  i88o.*  The  people 
were  contented,  employment  was  abundant,  and  the 
industrial  agitation  of  the  preceding  years  had  ap- 
parently disappeared. 

No  one  who  has  followed  thoughtfully  the  influ- 
ence of  trade  conditions  on  the  sentiment  of  voters, 
as  already  reviewed  in  our  study  of  1866,  of  1874, 
and  of  1878,  will  doubt  what  was  the  reasonable 
political  expectation  after  the  trade  revival  of  1879 
and  1880.  If  the  elections  of  1879  ^^^  been  held  in 
June,  it  is  doubtful  what  the  verdict  would  have 
been.  Resumption  was  then  denounced  in  many 
quarters  as  a  failure.  The  best  financial  plea  that 
the  Ohio  Republicans  could  put  forward,  in  their 

*  Poor's  Manual  of  Railroads ,  1880. 

•  Dun's  Review,  annual  tables. 

3 


66  American  Finance  [i879 

convention  platform  of  May  28th,  was  the  saving 
of  interest  charges  through  the  Administration's  re- 
funding operations.  On  June  4th,  the  Democrats  of 
that  State  retorted  by  demanding  "  the  full  restora- 
tion of  silver  ...  as  a  money  metal,"  and 
**  the  gradual  substitution  of  Treasury  notes  for 
national  bank  currency,"  and  by  nominating  for 
Governor  Thomas  Ewing,  the  author  of  the  bill  of 
1877  to  repeal  the  Resumption  Act.  This  attitude 
was  imitated,  to  a  greater  or  less  extent,  by  the  op- 
position party  in  other  Western  States.  It  affected 
even  the  East.  On  July  ist,  the  Democrats  of  Maine 
declared  for  "  the  free  and  unlimited  coinage  of  sil- 
ver "  ;  as  late  as  July  i6th,  the  Pennsylvania  Demo- 
crats adopted  a  platform  framed  to  suit  anybody  and 
mean  anything  on  the  currency. 

But  the  situation,  long  before  election  day,  was 
wholly  reversed.  By  the  early  autumn  months,  the 
Administration  could  point  out  results  following 
specie  resumption  even  larger  than  what  had  been 
promised  in  advance, — a  very  unusual  advantage.  In 
1878,  the  party  had  lost  heavily  in  many  Western 
constituencies ;  mainly,  as  we  have  seen,  because  of 
the  low  price  of  grain.  In  1879,  election  day  came 
at  the  very  climax  of  a  violent  rise  in  agricultural 
prices,  paid  for  the  largest  crops  ever  produced  in 
the  United  States.  Naturally,  the  autumn  party 
declarations  changed  their  tone  along  with  the 
rapidly  changing  business  outlook.  The  proclama- 
tions of  Republican  conventions  began  to  strike  a 
note  of  triumph.  "  We  congratulate  our  fellow- 
citizens  upon  the  restoration  of  confidence  and  the 


18791  The  Fall  Elections  67 

revival  of  business,"  were  the  words  in  which  the 
Massachusetts  convention  of  September  i6th  intro- 
duced its  eulogy  of  the  Administration.  "  The  sue* 
cessful  resumption  of  specie  payments 
followed  by  returning  national  prosperity,"  was  the 
theme  of  the  New  York  Republican  declaration  on 
September  2d.  As  in  the  preceding  year,  so  in 
1879,  the  autumn  Democratic  conventions  in  the 
East  were  forced  to  a  sullen  echo  of  this  rejoicing.* 
There  was  an  occasional  effort,  such  as  that  of  the 
New  York  State  Democratic  convention  of  Septem- 
ber nth,  to  divert  the  issue  into  condemnation  of 
the  Secretary's  "  speculative  methods,"  "  question- 
able favoritism  "  to  particular  institutions,  and 
"  extravagance  "  in  refunding.  In  the  West,  the 
opposition,  engaged  in  the  same  losing  fight  against 
the  odds  of  a  great  harvest  and  a  profitable  grain 
market,  declared  that  the  Treasury's  achievement 
was  a  stroke  of  luck.  "  Now  that  resumption  is  a 
success,"  Secretary  Sherman  himself  remarked  in  a 
campaign  speech,  "  Democrats  say  the  Republican 
party  did  not  bring  it  about,  but  that  Providence 
has  done  it ;  that  bountiful  crops  here  and  bad  crops 
in  Europe  have  been  the  cause  of  all  the  prosperity 
that  has  come  since  resumption."  ' 

As  we  have  seen,  there  was  more  or  less  truth  in  this 
allegation.     But  the  public  mind  does  not  trouble  it 
self  with  such  subtleties ;  it  rewards  or  punishes,  usu 
ally,  on  a  strict  basis  of  post-hoc  reasoning,  and  in 
the  vote  of  1879  ^^  recognized  properly  enough  the 

'  Massachusetts  Democratic  convention,  October  7,  1879. 
*  Speech  at  Cooper  Union,  New  York,  October  27,  1879. 


68  American  Finance  [i879 

really  great  achievement  of  the  Administration. 
The  three  political  battle-grounds  of  the  year  were 
Maine,  Ohio,  and  New  York,  in  each  of  which 
States  a  Governor  was  to  be  elected.  Maine  led  off 
in  September  with  a  Republican  plurality  6000 
greater  than  in  1878.  Ewing  was  beaten  in  Ohio 
by  a  plurality  of  17,129,  the  Republican  plurality  of 
the  year  before  having  been  only  3154.  In  New 
York  State  the  opposition  party  had  already  split 
up  into  factions,  and  Cornell  was  elected  by  the 
sweeping  plurality  of  42,777,  the  largest  Republican 
majority  in  the  State  since  1872.  Meantime  the 
Western  States,  which  had  gone  quite  uniformly 
against  the  Administration  in  1878,  made  a  similar 
response.  In  Michigan,  one  of  the  largest  winter- 
wheat-producing  States,  a  fusion  of  Democrats  and 
Greenbackers,  whose  votes  combined  would  in  the 
previous  year  have  carried  the  State  by  25,000,  was 
squarely  beaten  in  November,  1879,  ^y  ^  Republi- 
can majority  of  6043.  I'^  Iowa,  the  corn-growing 
State,  the  Administration  majority  increased  over 
1878  by  14,221  votes. 

The  Administration's  victory  was  complete.  After 
five  years  of  almost  uninterrupted  contest  over  the 
standard  of  value,  the  battle  was  ended.  This  fact 
was  tacitly  conceded  in  the  Presidential  platforms  of 
both  parties  during  the  summer  of  1880.  On  the 
6th  of  June  the  Republican  National  Convention  at 
Chicago  endorsed  in  the  most  unqualified  language 
the  financial  achievement  of  the  Hayes  Administra- 
tion. Both  the  Stanley  Matthews  wing  of  Repub- 
licanism and  the  timid  jugglers  with  the  issue  in  the 


1880]  The  Presidential  Campaign  69 

Western  Republican  conventions  of  1878  and  1879 
were  repudiated;  there  was  not  inserted  in  the 
party's  Chicago  platform  of  1880  a  single  word  to 
favor  even  silver  coinage.  Instead,  appeal  was  made 
in  behalf  of  a  party  which  had  "  raised  the  value  of 
our  paper  currency,"  "  restored  upon  a  solid  basis 
payment  in  coin  for  all  national  obligations,"  and 
"  lifted  the  credit  of  the  nation."  No  protest  was 
made  against  these  declarations,  even  by  those  un- 
lucky Republicans  who  had  sustained  the  Congres- 
sional resolution,  two  years  before,  to  pay  the 
Government  bonds  in  silver,  and  who  had  urged 
repeal  of  the  Resumption  Act.  Still  more  signifi- 
cant was  the  platform  of  the  Democratic  party  at 
Cincinnati,  three  weeks  later:  whose  only  declara- 
tion on  the  currency  was  a  plank  for  "  honest  money, 
consisting  of  gold  and  silver,  and  paper  convertible 
into  coin  on  demand ;  the  strict  maintenance  of  the 
public  faith."  In  short,  what  the  Hayes  Adminis- 
tration had  achieved,  the  Administration  party, 
reasonably  enough,  appropriated  to  its  own  advan- 
tage, and  the  opposition  could  not  contest  its  right 
to  do  so. 

Except  for  the  disputed  claim  involved  in  the 
1876  election,  the  party  had  small  reason  to  appre- 
hend the  national  vote  of  November,  1880.  The 
event  proved  even  this  misgiving  to  have  been  ex- 
aggerated. But  for  this  same  clouded  title.  President 
Hayes  would  logically  have  sought  renomination, 
and  would  have  deserved  it.  When  Mr.  Hayes  re- 
fused to  submit  his  name,  there  seemed  to  be  some 
probability  that  Secretary  Sherman's  services  would 


70  American  Finance  [I88O 

be  recognized  by  the  nomination.  But  there  was  ah 
instinctive  distrust  of  Mr.  Sherman  in  his  own  party, 
which  can  only  be  explained  by  his  record  as  a  politi- 
cal opportunist  in  the  years  before  his  Cabinet  career. 
Those  who  did  not  question  his  sincerity  doubted 
his  stability — a  doubt  not  wholly  unwarranted  by  his 
repeated  change  of  front  before  what  seemed  to  be 
the  ruling  popular  sentiment.  There  was,  moreover, 
an  equally  instinctive  feeling  that  the  nominee  of  the 
Chicago  convention  would  certainly  be  the  winner 
at  the  polls  in  November.  This  conviction  always 
leads  to  a  sharp  convention  struggle.  Into  the  de- 
tails of  the  very  singular  preliminary  contest  at 
Chicago  it  is  needless  to  enter  here.  Only  on  the 
thirty-sixth  convention  ballot  was  the  deadlock  be- 
tween the  adherents  of  Secretary  Sherman,  of  ex- 
President  Grant,  and  of  Mr.  James  G.  Blaine  broken 
by  concentration  upon  General  Garfield  of  nearly 
all  delegates,  except  the  Grant  contingent. 

At  Cincinnati,  three  weeks  later,  the  National 
Democratic  convention  was  a  gathering  as  tame  as 
the  Chicago  convention  had  been  exciting.  The 
rank  and  file  were  full  enough  of  confidence,  but  the 
party's  experienced  leaders  were  well  aware  that 
with  industrial  contentment  on  all  sides  their  case 
was  hopeless.  The  manner  in  which  a  candidate 
manoeuvres  for  the  nomination,  or  his  friends  in  his 
behalf,  is  governed  wholly  by  the  prospect  of  success. 
For  nomination  and  defeat,  especially  if  the  defeat 
be  overwhelming,  commonly  lead  in  the  United 
States  to  political  oblivion.  In  the  party's  National 
Convention  of  1868,  with  a  somewhat  parallel  situa- 


1880]  Predictions  for  the  Future  71 

tion,  nearly  all  of  the  shrewdest  Democratic  leaders 
avoided  nomination,  and  Horatio  Seymour  was 
eventually  forced  to  take  it  against  his  will.  The 
case  of  1880  was  similar.  The  party's  strongest 
candidates  were  named  to  the  Convention  in  a  per- 
functory way,  there  was  little  or  no  contest,  and  on 
the  second  ballot  General  Hancock,  who  with  his 
purely  military  record  had  nothing  to  lose  through 
a  political  defeat,  was  readily  placed  in  nomination. 
The  result  of  the  November  ballots  amply  justified 
such  misgivings.  Against  the  185  electoral  votes 
awarded  to  Hayes  in  1876,  Garfield  in  1880  captured 
214.  Tilden,  in  1876,  obtained  on  popular  vote  a 
plurality  over  Hayes,  even  by  the  Republican  count, 
of  252,224;  Garfield's  plurality  over  Hancock,  in 
1880,  was  9464. 

The  party  whose  most  sagacious  leaders  had  fought 
and  won  the  resumption  battle  seemed,  in  brief,  to 
be  surely  seated  in  the  control  of  public  matters, 
from  which  the  panic  of  1873  and  the  resultant  trade 
stagnation  had  so  nearly  banished  it.  But  the  prob- 
lem of  the  currency  remained.  The  silver  question 
was  not  the  only  cloud  on  the  party's  horizon.  The 
problem  of  resumption  had  been  solved  for  1880, 
and  for  many  subsequent  years,  by  a  happy  accident 
of  nature.  Far-sighted  public  men  recognized,  how- 
ever, even  at  the  climax  of  the  party  triumph  of 
1880,  that  the  system  on  which  resumption  had  been 
founded  still  left  the  national  finances  at  the  mercy 
of  future  commercial  accidents.  In  almost  the  last 
official  papers  of  the  Hayes  Administration  occur 
two  declarations  very  remarkable  for  their  positive 


72  American  Finance  [I88O 

contradiction  of  one  another.  In  his  annual  Treas- 
ury report  of  December  6,  1880,  Secretary  Sherman 
remarked:  "  United  States  notes  are  now,  in  form, 
security,  and  convenience,  the  best  circulating 
medium  known."  *  In  his  message  to  Congress  on 
the  same  day.  President  Hayes  declared  :  "  The 
retirement  from  circulation  of  United  States  notes 
is  a  step  to  be  taken  in  our  progress  towards  a  safe 
and  stable  currency,  which  should  be  accepted  as 
the  policy  and  duty  of  the  Government  and  the  in- 
terest and  security  of  the  people."  The  President, 
in  short,  condemned  as  unsafe  and  mischievous  a 
currency  which  his  financial  minister,  enjoying  the 
full  personal  confidence  of  the  President,'  declared 
to  be  safe,  satisfactory,  and  worthy  of  perpetuation. 
The  incident  was  sufficiently  singular;  one  of  the 
(wo  responsible  leaders  in  the  financial  reform  of 
1879  must  have  been  mistaken.  We  shall  discover, 
before  our  study  of  the  ensuing  period  is  completed, 
which  of  the  two  was  right. 

^Annual  Treas.  Rep.,  1880,  p.  xiv. 
*  Recollections,  ii.,  p.  808. 


CHAPTER  IV 

THE  SILVER  PROBLEM 

ALTHOUGH  President  Hayes  and  his  Secretary 
of  the  Treasury  differed  radically  in  their 
opinion  of  the  legal  tenders,  they  were  agreed,  at 
the  close  of  the  Administration,  in  their  judgment 
regarding  compulsory  coinage  of  silver  dollars.  This 
was  the  more  noteworthy,  in  view  of  Mr.  Sherman's 
expressed  disapproval  of  the  President's  veto  mes- 
sage of  1 878.  But  the  Secretary  had  begun  to  change 
his  own  mind,  even  before  the  year  was  over.  When 
the  Act  of  1878  was  passed,  Mr.  Sherman  held  that 
the  Senate  amendments  "  seemed  to  remove  all 
serious  objections  to  the  measure."  '  A  few  months 
later,  he  took  a  very  different  view.  He  began  by 
suggesting  compromises,  recommending,  first,  "  the 
addition  of  one  tenth  or  one  eighth  to  the  thickness 
of  the  silver  dollar,"* — a  singular  proposition  to 
make  on  a  steadily  declining  silver  market,  and  one 
for  which,  curiously  enough,  he  obtained  the  Presi- 
dent's approval.*  Congress  having  paid  no  attention 
to  this  proposition,  the  Secretary  made  a  still  more 

^Recollections,  ii,,  p.  623.  *  Treas.  Rep.,  1878,  p.  xvi. 

*  President  Hayes,  Annual  Message,  December  6,  1880. 

73 


74  American  Finance  nsso 

definite  appeal  for  the  "  importance  of  further  limit- 
ing the  coinage  of  the  silver  dollar. ' '  '  But  the  Law 
of  1878  was  left  in  force,  and  so  rapidly  now  did  the 
Secretary's  misgivings  deepen,  that  in  the  summer 
of  1880  he  privately  declared  that  "  the  silver  law 
threatens  to  produce  within  a  year  or  so  a  single 
silver  standard.  ...  I  could  at  any  moment, 
by  issuing  silver  freely,  bring  a  crisis."  * 

Let  us  see  what  was  the  reason  for  this  remarkably 
pessimistic  judgment,  at  the  very  time  when  outside 
trade  was  moving  towards  the  high  tide  of  prosper- 
ity. When  President  Hayes  vetoed  the  Silver  Act 
of  1878,  he  expressed  his  judgment  that  circulation 
of  a  dollar  worth  intrinsically  less  than  the  gold 
dollar  would  sooner  or  later  "  put  an  end  to  the  re- 
ceipt of  the  revenue  in  gold,"  and  thus  deprive  the 
Government  of  the  means  of  paying  its  gold  obliga- 
tions.* It  was  this  objection  to  the  law  which 
presently  turned  out  to  be  the  matter  of  serious  con- 
cern. The  Silver  Coinage  Act  had  been  only  a  very 
short  time  in  operation  before  the  President's  predic- 
tion was  confirmed  by  the  movement  of  events. 

The  legal-tender  notes  were  redeemable  in  coin, 
and  since  the  Resumption  Act  was  passed  when  the 
only  authorized  United  States  coin,  except  the  trade 
dollar,  was  gold,  it  was  quite  universally  conceded 
that  gold  redemption  was  peremptory.  Even  the 
Congressional  resolution  of  January,  1878,  which 
declared  for  silver  payment  on  the  bonds,  had  made 

'  Treas.  Rep.,  1879,  p.  xiv. ;   1878,  p.  xv. 
*  Letter  to  James  A.  Garfield,  July  19,  1880. 
»  Veto  Message,  February  28,  1878. 


1880]  Silver  Dollars  not  Wanted  75 

no  such  suggestion  regarding  the  legal-tender  notes. 
Being  redeemable  in  gold,  the  notes  could  not  de- 
preciate so  long  as  the  Treasury  had  the  power  and 
means  of  providing  gold  for  such  redemption.  They 
therefore  circulated  freely,  and  were  not  only  used 
for  banking  purposes  in  the  cities,  but  were  absorbed 
in  the  every-day  interior  exchanges,  being  easily 
portable  and  issued  in  convenient  denominations. 

But  the  silver  dollars  established  by  the  Law  of 
1878  stood  on  a  different  basis.  To  begin  with,  it 
developed  almost  immediately  that  the  people  did 
not  want  this  heavy  coin  for  their  every-day  change. 
If  any  kind  of  currency  is  needed  constantly  by  the 
customers  of  a  bank,  it  is  the  business  of  the  bank 
to  keep  that  currency  on  hand.  But  if  its  customers 
do  not  want  a  given  kind  of  currency,  and  ask  for 
something  different,  the  bank  will  necessarily  try  to 
pass  over  to  other  institutions  the  currency  not  in 
request  among  its  depositors.  This  is  exactly  what 
occurred  with  the  silver  dollars  throughout  the 
United  States.  City  and  country  trade  alike  ob- 
jected to  settlements  in  the  silver  dollars.  At  the 
time,  the  legal  tenders  forwarded  from  the  East 
were  sufficient  as  a  basis  for  trade  exchanges;  the 
silver  dollars  were  not  necessary,  as  they  might  have 
been  with  materially  larger  trade.  Every  bank  of 
deposit,  therefore,  passed  them  along  at  the  earliest 
opportunity  to  its  neighbor.  Eventually,  as  Presi- 
dent Hayes  had  predicted  in  his  veto  message,  silver 
began  to  fill  the  channels  of  public  revenue,  which 
are  the  final  outlet  for  a  superfluous  or  unpopular 
currency.     As  early  as  1880,  it  had  proved  to  be  im- 


76  American  Finance  [leeo 

possible  to  keep  in  circulation  more  than  thirty-five 
per  cent,  of  the  dollars  coined/ 

Now  it  is  true  that  what  the  Treasury  receives  in 
revenue — whether  paper,  gold,  or  silver — it  can  pay 
out  again  for  public  expenses.  If  the  silver  dollars 
would  not  circulate  in  the  interior,  they  could  be 
forced  into  circulation  at  the  large  Eastern  disbursing 
centres,  especially  at  New  York,  where  the  National 
Government's  monthly  expenditure  at  the  time  ran 
as  high  as  twenty  to  thirty  millions.  But  for  a  very 
interesting  reason,  this  outlet  was  virtually  blocked. 
The  New  York  Sub-Treasury,  it  will  be  recalled,  was 
a  member  of  the  Clearing-House  of  the  New  York 
Associated  Banks.  On  November  12,  1878,  when 
the  Clearing-House  admitted  the  Sub-Treasury  to 
membership,  and  arranged  for  the  free  exchange  of 
United  States  notes  and  gold,  it  formally  resolved 
to  "  prohibit  payment  of  balances  at  the  Clearing- 
House  in  silver  certificates,  or  in  silver  dollars,  ex- 
cept as  subsidiary  coin,  in  small  sums."*  To  this 
condition  the  Treasury  authorities  had  raised  no 
objection.* 

So  long  as  the  silver  circulation  was  small,  and 
the  return  of  the  silver  coin  from  interior  circu- 
lation had  not  yet  become  active,  the  New  York 
Clearing-House  rule  was  regarded  as  a  mere  rou- 
tine banking  arrangement.  When,  however,  sil- 
ver dollars  began  to  crowd  the  channels  of  public 

'  Secretary  Sherman,  Treas.  Rep.,  1880,  p.  xviii. 

•  Specie  Resumption,  p,  401. 

•  Sherman  to  George  S.  Coe,  November  13,  1878  ;  Specie  Resump- 
tion, p.  40a. 


1882]  Silver  Bullion  Depreciates  77 

revenue,  the  Treasury's  inability  to  get  rid  of  its 
silver  through  the  Clearing- House  became  a  matter 
of  considerable  moment.  Its  stock  of  legal  tenders 
was  already  very  low,  and  except  for  the  legal- 
tender  notes,  gold  was  the  only  medium  for  these 
New  York  payments.  As  a  result,  the  silver  surplus 
in  the  Treasury  increased  during  the  early  months 
of  1880  with  great  rapidity,  while  its  surplus  gold 
fund,  which  had  been  materially  enlarged  during  the 
harvest  movement  of  the  previous  autumn,  decreased 
even  faster.  With  the  Treasury's  mass  of  gold  ob- 
ligations, this  was  a  serious  sign  of  danger. 

This  policy  of  the  New  York  Clearing-House  came 
in  for  a  round  of  angry  denunciation  on  the  floor  of 
Congress.  It  was  declared  to  be  a  conspiracy  of 
Eastern  bankers,  designed,  first,  to  discredit  the 
silver  currency,  and  second,  to  get  the  advantage  of 
the  Treasury.  It  was  formally  proscribed  in  July, 
1882,  when  the  twenty-year  charters  of  the  national 
banks,  about  to  expire  under  the  banking  law,  were 
renewed  by  Congress.  In  granting  extension  of 
these  charters.  Congress  added  the  positive  stipula- 
tion that  "  no  national  banking  association  shall  be 
a  member  of  any  clearing-house  in  which  such  [silver] 
certificates  shall  not  be  received  in  settlement  of 
clearing-house  balances." 

In  all  this  controversy,  the  New  York  banks 
seemed  to  be  on  the  defensive.  Let  us  see,  how- 
ever, what  was  their  actual  motive.  The  New  York 
banks  perform  for  the  United  States  the  office  which 
the  London  banks  perform  for  England ;  they  man- 
fige  the  country's  settlements  on  foreign  exchange 


yS  American  Finance  nsso 

and  they  act  both  as  depositories  and  remitters  of 
funds  for  the  interior.  We  have  seen  that  the  in- 
terior banks  and  their  customers  did  not  wish  the 
silver  currency ;  silver  dollars  were  therefore  super- 
fluous in  New  York  reserves  for  their  inland  busi- 
ness. But,  on  the  other  hand,  silver  dollars  were 
useless,  except  at  a  heavy  discount,  for  settlements 
in  foreign  exchange.  Had  the  silver  dollars,  like 
the  legal  tenders,  being  convertible  at  the  Treasury 
into  gold,  the  problem  would  have  been  somewhat 
altered ;  but  they  were  not  thus  convertible.'  If  the 
silver  dollar's  bullion  value  had  advanced  to  equa- 
lity with  the  gold  dollar,  either  coin  might  possibly 
have  been  used  for  remittance  against  bankers'  ex- 
change. But  there  was  no  such  advance.  The  pur- 
chase of  two  million  dollars'  worth  of  silver  bullion 
monthly  did  indeed  temporarily  raise  the  price  of 
silver.  The  rise,  however,  was  only  slight.  There 
was  an  instant  increase  in  the  output  of  the  silver 
mines,  production  in  1878  rising  four  million  ounces 
over  the  previous  year  in  the  United  States  and 
eleven  million  in  the  world  at  large.  India  and 
China,  which  had  absorbed  ;^i7,ocx),ooo  silver  from 
the  London  export  market  in  1877,  took  in  the  next 
year  only  ^^5,842,000.*  Even  without  allowing  for 
the  sales  of  old  coin  by  the  German  Government,  the 
new  demand  for  coinage  purposes  by  the  United 
States  Treasury  was  more  than  offset  by  these  plain 
commercial  factors. 

'  Secretary  Sherman,  letter  to  President  of  New  Orleans  Clearing* 
House,  December  10,  1878  ;  Specie  Resumption,  p.  420. 
*  Pixley  &  Abell,  annual  London  tablet. 


1880]        Clearing-House  Rule  Revoked  79 

These  influences,  it  may  be  observed,  were  con- 
tinuous; export  of  silver  to  the  East  never  again 
reached  the  total  of  1877,  and  within  twelve  years 
the  world's  annual  product  had  exactly  doubled.' 
Even  in  1878,  the  average  intrinsic  value  of  the 
silver  dollar  on  the  bullion  niarket  was  barely  eighty- 
nine  cents;  in  1879,  it  was  less  than  eighty-seven.* 
The  silver  coin  was  unavailable,  therefore,  for  settle- 
ments in  foreign  exchange,  except  at  a  discount  of 
twelve  per  cent,  or  more.  It  was  rejected  from  in- 
terior circulation.  In  the  event  of  a  year  of  dull 
interior  trade,  it  was  reasonably  certain,  first  that 
the  surplus  silver  currency  of  the  interior  would  heap 
up  at  New  York  City,  and  second,  that  gold  ship- 
ments to  Europe  would  grow  heavy.  If  to  this 
double  movement  were  to  be  added  Government 
disbursements  wholly  or  chiefly  in  silver  dollars, 
the  time  must  eventually  come  when  all  the  bank 
exchanges  at  New  York  would  be  conducted  in  silver 
coin.  That  this  was  no  idle  fear,  but  a  correct 
view  of  the  situation,  the  experience  with  another 
form  of  redundant  currency  proved  conclusively  in 
1892. 

But  the  inevitable  result  of  such  conversion  of  the 
New  York  banking  reserve  into  silver  coin  worth  in- 
trinsically less  than  gold  would  be  that  gold  for  pur- 
poses of  foreign  settlements  could  be  had  only  at  a 
premium.  In  other  words,  the  entire  currency 
would  depreciate.  It  was  to  avert  this  possibility 
that  the  Clearing-House  framed  its  rule  of  1878.  It 
was  a  most  unusual  move,  and  it  could  hardly  in  the 

^M.^WixX^  Annual  Reports.  *  Ibid, 


8o  American  Finance  [i882 

end  have  prevented  a  fall  to  the  silver  standard,  if 
the  country  had  remained  unable  to  absorb  the  two 
millions'  monthly  coinage.  At  New  York,  never- 
theless, it  was  regarded  as  a  measure  of  self-preser- 
vation, and  this  was  what  Secretary  Sherman  meant 
when  he  said  in  1880  that  by  issuing  silver  freely 
he  could  at  any  time  bring  on  a  crisis.  Both  the 
banks  and  the  Treasury  recognized  the  nature  of 
the  situation,  even  in  1882.  When  the  New  York 
Clearing-House,  after  the  passage  of  the  law  for- 
bidding national  banks  to  co-operate  in  a  clearing- 
house which  excluded  silver,  resolved  that  the 
institution's  rules  "  be  amended  so  far  as  they  con- 
flict with  section  12  of  the  Act  of  July  12,  1882," 
not  only  did  no  bank  take  advantage  of  the  op. 
portunity  to  tender  silver  for  its  balances,  but 
the  Treasury  itself,  in  its  transactions  with  the 
Clearing-House,  pursued  exactly  the  same  policy.' 
It  pursued  it,  notwithstanding  the  fact  that  the  re- 
turn of  silver  currency  from  circulation,  in  the  nine 
months  after  the  harvest  season  of  1879,  increased 
the  Government's  silver  surplus  eleven  million  dol- 
lars, while  its  gold  reserve,  which  had  to  be  drawn 
upon  for  Eastern  settlements,  declined  from  $157,- 
000,000  to  $1 15,000,000. 

But  the  crisis  predicted  by  Mr.'  Sherman  did  not 
come,  and  we  shall  readily  discover  why.  The 
trouble  in  the  summer  of  1880  arose  partly  from  the 
fact  that  the  new  silver  issues  were  in  excess  of  the 
needs  of  interior  trade.  But  a  money  supply  which 
is  sufficient,  or  even  superfluous,  for  the  trade  ex- 
*  Treasurer  Wyman,  Trtas.  Rep.,  -1&84,  p.  414. 


1880]  Silver  Currency  Circulated  8i 

changes  of  one  season,  may  be  only  large  enough  in 
another,  when  the  volume  of  trade  has  greatly  ex- 
panded. Something  like  this  happened  in  the  au- 
tumn of  1880,  when  interior  trade,  as  we  have  seen, 
rose  to  unprecedented  volume.  Not  only  did  the 
West  and  South  retain  in  permanent  circulation  a 
large  part  of  the  legal-tender  notes  shipped  to  them 
in  the  harvest  movement  of  1879,  but  they  now  drew 
heavily  on  the  East  for  fresh  remittances.  Again,  as 
is  usual  under  such  conditions,  the  Eastern  banks 
drew  gold  from  Europe  and  shipped  their  own  legal 
tenders  inland.  But  the  absorption  of  Government 
notes  in  the  two  preceding  active  seasons  had  largely 
drained  the  East  of  this  form  of  currency.  During 
the  autumn  of  1880,  the  legal-tender  reserve  of  the 
New  York  banks  fell  to  the  very  low  aggregate  of 
$1 1 ,989,(XX),  only  half  as  much  as  they  had  held  a  year 
before.'  Their  gold  holdings,  on  the  other  hand, 
were  very  large,  and  they  now  applied  to  the  Treas* 
ury,  as  they  had  done  in  1879,  ^^  exchange  its  own 
surplus  of  legal-tender  notes  for  gold. 

Meantime,  however,  the  very  causes  which  had 
drained  off  the  legal  tenders  from  the  Eastern  banks 
had  also  reduced  the  Treasury's  supply  to  small  pro- 
portions. At  the  close  of  1880  the  Government  held 
less  of  the  legal  tenders  even  than  the  New  York 
banks.  This  was  the  opportunity  for  relieving  the 
Treasury's  stock  of  idle  silver,  and  it  was  promptly 
utilized.  In  September,  1880,  Secretary  Sherman 
offered,  in   return  for  deposit  of  gold  at  seaboard 

'  Weekly  statement,  New  York  Associated  Banks,  November  6, 
1880. 


83  American  Finance 


[1860 


cities,  to  supply  exchange  on  interior  sub-treasuries, 
payable  at  those  points  in  silver  coin.  The  offer, 
under  the  circumstances,  was  very  generally  ac- 
cepted. The  silver  shipments,  it  is  true,  were  ex- 
pensive to  the  Government,  and  the  coin,  even  when 
delivered,  would  not  stay  in  circulation,  but  was 
promptly  tendered  again  for  silver  certificates. '  This 
was  interesting  evidence,  at  the  height  of  the  interior 
demand  for  currency,  that  silver  dollars  were  un- 
popular, even  in  quarters  where  the  silver  advocates 
had  pictured  the  trade  as  eager  for  that  form  of  cur- 
rency. The  silver  certificates,  under  the  Law  of 
1878,  could  not  be  issued  in  denominations  smaller 
than  ten  dollars  ;  nevertheless,  these  bills  were 
obviously  preferred  to  the  coin  itself  by  the  interior 
trade.  But  even  in  this  form,  the  operation  served 
the  Treasury's  purposes.  During  the  twelve  months 
following  the  issue  of  the  circular,  this  arrangement 
with  the  Eastern  banks  put  $23, 560,000  of  the  Gov- 
ernment's silver  surplus  into  circulation  from  the 
sub-treasuries  of  New  Orleans,  St.  Louis,  Cincinnati, 
and  Chicago,  and  replaced  it  with  imported  gold." 
In  the  five  last  months  of  1880 — almost  immediately 
after  Mr.  Sherman's  despondent  prophecy, — the 
silver  surplus  in  the  Treasury  fell  from  $46,256,000 
to  $18,246,000,  and  its  surplus  gold  fund  rose  from 
$115,000,000  to  $150,000,000.  The  danger  of  a  sil- 
ver standard  had  apparently  disappeared. 

I  have  gone  thus  fully  into  this  introductory  silver- 
coinage  episode,  at  the  risk  of  wearying  the  reader 

>  Treasurer  GilfilUui,  Annual  Treas.  Htf.,  1881,  p.  409. 
*  Ibid.,  p.  436. 


18801  "  Turn  of  the  Tide "  83 

with  particulars,  because  no  chapter  of  our  financial 
history  is  so  widely  misunderstood.  The  fact  that 
the  Eastern  banks  in  1878  and  1879  virtually  refused 
to  accept  silver  dollars  from  the  Treasury,  whereas 
in  1880  they  paid  gold  for  them,  is  often  cited  as 
proof  that  the  Clearing- House  rule  against  silver 
payments  was  unwarranted.  From  the  fact  that  the 
interior  trade  absorbed  the  silver  currency  in  the 
autumn  of  1880,  it  has  been  inferred  that  only  the  op- 
position of  the  banks  prevented  its  ready  interior 
circulation  a  year  before.  The  reader  will  now,  I 
think,  be  able  to  understand  the  reason  for  both 
these  seeming  discrepancies.  The  silver  currency 
was  superfluous  in  the  spring  of  1880;  therefore  it 
was  thrown  back  upon  the  Treasury  and  the  East. 
It  was  not  superfluous  in  the  winter  of  1880,  be- 
cause the  volume  of  trade  had  expanded  even  more 
rapidly  than  the  increase  in  the  currency.  Ob- 
viously, the  question  of  the  future  was,  whether 
interior  trade  would  continue  to  expand  with  suffi- 
cient uniformity  to  absorb  the  $25,000,000  annual 
silver  coinage  of  the  future,  as  it  had  apparently 
absorbed  the  coinage  of  1880. 

There  were  some  signs  of  a  change  in  the  move- 
ment of  prosperity,  as  early  as  1 881.  Most  people, 
in  succeeding  years,  were  accustomed  to  date  back 
the  "  turn  of  the  tide  "  to  the  assassination  of  Presi- 
dent Garfield  on  July  2,  1881.  Undoubtedly  this 
event  was  a  shock  to  the  financial  markets ;  particu- 
larly to  markets  in  which  excited  speculation  for  the 
rise  had  cut  so  large  a  figure  as  it  did  in  those  of 
1880  and  1 88 1.     But  Garfield's  death  was  not  a  de- 


84  American  Finance  [lasi 

cisive  influence  on  the  situation;  it  was  in  fact  a 
coincidence  rather  than  a  cause.  A  far  more  per- 
manent influence  was  exerted  by  the  destructive 
drought  of  1 88 1  in  the  entire  harvest  district  of  the 
United  States.  The  country's  wheat  crop  of  that 
year  turned  out  only  three  fourths  as  large  as  the 
crop  of  1880;  its  corn  crop  was  the  smallest  since 

1874.* 

To  the  farmers,  there  was  an  unexpected  com- 
pensation for  this  shortage ;  a  wet  harvest  season 
in  England  and  on  the  European  continent  cut  down 
the  wheat  yield  of  the  foreign  producers  also. 
Foreign  and  home  demand  for  grain  was  very 
heavy,  and  what  could  be  spared  for  export  was 
sold  at  high  prices.  According  to  the  Agricultural 
Bureau's  estimate,  the  total  market  value  of  the 
year's  American  grain  harvest,  small  as  its  volume 
was,  exceeded  the  value  even  of  the  great  crop  of 
1880.  But  in  two  other  directions,  the  harvest  short- 
age of  1 88 1  had  more  unpleasant  results.  The  rail- 
ways suffered  severely  from  the  decrease  of  grain 
supplies  on  which  they  relied  for  traffic.  Their 
freight  earnings,  in  the  ensuing  year,  decreased  no 
less  than  $45,6oo,ocx).'  At  the  same  time,  the 
scarcity  of  grain  for  export  cut  down  the  country's 
export  trade.  This  happened  at  a  time  when  im- 
ports of  foreign  merchandise  had  been  excessively 
stimulated  by  the  protracted  speculation  for  the  rise 
in  almost  every  market,  and,  as  a  consequence,  the 
excess  of  exports  over  imports,  which  in  the  twelve 

'  Annual  Reports,  U.  S.  Bureau  of  Agriculture. 
•  Poor's  Manual  of  Railroads,  1882. 


1882]  Reaction  on  the  Markets  ^5 

months  ending  with  June,  1881,  had  reached  the 
enormous  sum  of  $259,700,000,  fell  in  the  next 
twelve  months  to  less  than  $26,000,000.  By  the 
close  of  1 88 1,  the  foreign  exchanges,  so  long  held 
down  in  favor  of  the  United  States,  began  to  move 
against  us.  By  March,  1882,  heavy  export  of  gold 
began;  before  the  close  of  the  fiscal  year,  in  June, 
$32,500,000  had  been  shipped, — the  largest  export 
of  gold  since  1876. 

This  decided  change  in  foreign  trade  meant,  of 
course,  that  the  country's  command  over  foreign 
capital  was  lessened.  But  the  impetus  to  industrial 
prosperity,  in  the  two  preceding  years,  had  been  so 
great  that  the  reaction  was  slow  in  developing. 
What  was  lost  in  foreign  capital  seemed  to  be  made 
up  in  home  support,  and  the  earlier  markets  of  1882 
appeared  to  reflect  actually  increased  prosperity. 
So  far  as  prices  were  an  index  to  the  situation,  the 
average  level  of  1882,  on  all  the  American  commod- 
ity markets,  was  the  highest  in  half  a  dozen  years.' 
Unfortunately,  these  very  commodity  prices  were 
fixed  and  sustained  by  the  use  of  credit  on  a  highly 
speculative  basis.  "  It  could  not  be  regarded  as  a 
favorable  circumstance,"  one  contemporary  critic 
wrote,  in  reviewing  1882,  "  that  so  many  parties  in 
various  kinds  of  business,  and  even  professional  men, 
were  engaged  in  carrying  stocks,  produce,  cotton, 
petroleum,  and  so  forth,  on  margin."  *  Before  the 
year  was  half  over  a  movement  of  liquidation  was  ap- 
parent.    It  was  disguised,  as  such  operations  always 

'  U.  S.  Senate  Report  on  Prices  and  Wages,  p,  9. 
•  New  York  Financial  Chronicle,  January  6,  1883. 


86  American  Finance  [i862 

are,  but  the  facts  might  easily  be  inferred  from  actual 
results.  The  investment  markets  were  then,  as  usual, 
typical  of  the  general  situation.  During  a  good  part 
of  the  year,  the  strongest  capitalists  and  speculators 
were  kept  busy  denying  reports  that  they  had  been 
selling  securities.  Most  of  them,  like  Mr.  William  H. 
Vanderbilt,  answered  the  accusation  by  liberal  pre- 
dictions of  prices  still  higher  than  the  inflated  values 
lately  prevalent.  Mr.  Jay  Gould  evolved  the  charac- 
teristic expedient  of  exhibiting  to  a  select  committee 
the  contents  of  his  safe,  comprising  $53,o<X),ooo  rail- 
way and  telegraph  share  certificates  made  out  in  his 
own  name.  This,  too,  was  designed  to  prove  that 
the  owner  of  the  shares  was  not  a  seller.  Nothing, 
however,  to  an  experienced  eye,  could  better  have 
proved  the  existence  of  liquidation  than  these  care- 
ful efforts  to  disprove  it.  As  a  matter  of  fact,  all  of 
the  markets  were  moving  downward  by  the  middle 
of  1882.  In  the  produce  markets,  the  movement 
was  emphatic,  and  it  reflected  the  very  patent  fact 
that  the  United  States  was  now  losing  the  singular 
advantage  which  it  had  for  three  years  enjoyed  in 
the  foreign  trade.  The  American  grain  harvest  of 
1882  was  only  a  trifle  smaller  than  the  great  harvest 
of  1880.  But  in  1880  the  European  crops  ran  short, 
whereas  in  1882  the  foreign  states  produced  the 
largest  total  wheat  crop  in  their  history.'  For  the 
first  time  since  1878,  the  American  farmer  met  urgent 
competition  in  the  export  market,  and  the  price  of 
wheat,  which  in  May,  1882,  had  touched  $1.40  per 
bushel  in  Chicago,  fell  in  December  to  91^  cents. 

'  Liverpool  Corn-  Trad*  Ntws  eitimatCA- 


1882J  Surplus  of  Revenue  87 

The  cotton  crop  met  with  an  exactly  similar  experi- 
ence, the  American  yield  of  1882  being  by  far  the 
largest  on  record,  in  the  face  of  flagging  demand  from 
the  foreign  cotton-spinners.'  In  almost  every  staple 
market,  the  course  of  events  was  identical ;  notably 
in  the  iron  and  steel  trade,  where  production  and 
speculation  had  been  forced  to  the  highest  pitch  at 
the  moment  when,  as  a  result  of  i88rs  unsatisfac- 
tory earnings,  orders  for  new  railway  construction 
slackened.*  In  short,  production  in  the  majority 
of  industries  had  outrun  consumption;  a  readjust- 
ment of  prices  was  inevitable,  and  producers  who 
were  slowest  to  reduce  their  prices  had  to  make  in 
the  end  the  largest  sacrifice.  Meantime  the  wind 
was  rushing  out  of  the  balloon  of  American  specula- 
tion. 

The  bearing  of  this  altered  trade  situation  on  the 
silver-currency  problem  we  shall  presently  notice. 
For  the  time,  the  currency  problem  was  in  a  con- 
siderable measure  obscured  by  the  question  of  the 
surplus  revenue.  The  enormous  importations  of 
foreign  merchandise,  which  in  1882  were  larger  by 
sixty  per  cent,  than  those  of  1879,  ^^^  ^^  conse- 
quent increase  of  the  customs,  had  now  intro- 
duced that  unique  problem  of  American  finance,  a 
revenue  too  large  to  be  conveniently  disposed  of. 
The  surplus  of  public  revenue  over  expenditure  was 
$6,879,300  in  the  fiscal  year  1879  *»  i"  ^882  it  was 
$145,543,810.     Now  it  is  true  that  the  funded  debt 

•  Ellison's  Annual  Cotton  Review,  January,  1883. 

*  Annual  Reports,  American  Iron  and  Steel  Association,  l88a, 
18S3. 


88  American  Finance 


[1882 


of  the  United  States,  even  after  the  large  redemp- 
tion of  bonds  in  the  ten  preceding  years,  remained 
at  a  billion  and  a  half  of  dollars,  and  that  nearly  one 
third  of  these  outstanding  bonds  were  redeemable  at 
par  at  the  pleasure  of  the  Government.'  But  the 
surplus  revenue,  if  continued  at  the  annual  rate  of 
1882,  would  extinguish  all  this  redeemable  debt 
within  three  years,  leaving  no  outlet  for  the  surplus 
except  purchase  of  unmatured  bonds  at  whatever 
price  they  commanded  in  the  market,  or  enormous 
increase  in  expenditure.* 

The  Administration  reasoned  that  such  an  out- 
look pointed  distinctly  to  reduction  of  the  taxes, 
and  to  that  end  the  President  and  the  Secretary  of 
the  Treasury  earnestly  urged  on  Congress  a  revision 
of  the  customs  tariff. '  President  Arthur  went  beyond 
the  mere  question  of  the  surplus,  and  submitted  a 
strong  plea  for  the  relief  of  "  industry  and  enterprise 
from  the  pressure  of  unnecessary  taxation."  Un- 
fortunately for  this  apparently  reasonable  advice,  the 
customs  taxes  were  protective,  and  the  Republican 
party,  then  in  power  in  all  branches  of  the  Govern- 
ment, was  committed  to  protection.  Rather  than 
reduce  the  surplus  revenue,  therefore.  Congress 
began  to  spend  it.  Out  of  the  forty-four  millions 
increcise  in  the  annual  Government  expenditure,  be- 
tween 1879  ^"^  1883,  only  a  trifling  part  arose  from 

'  Secretary  Folger,  Treas.  Rep.,  1882,  pp.  xxx.,  xxxi. 

*  President  Arthur,  Annual  Messages,  December  6,  1881,  Decem- 
ber 4,  1882  ;  Secretary  Folger,  Annual  Treas.  Rep.,  1882,  pp.  xxvii., 
zxix. 


18821  Extravagance  of  Congress  89 

larger  outlay  for  the  Civil  List,  the  Federal  arma- 
ment, or  the  Indians.  In  1872,  when  reporting  the 
session's  appropriation  bill.  General  Garfield  had  de- 
clared in  the  House  of  Representatives:  "  We  may 
reasonably  expect  that  the  expenditures  for  pensions 
will  hereafter  steadily  decrease,  unless  our  legisla- 
tion should  be  unwarrantably  extravagant."  '  And 
in  fact,  between  1872  and  1878  the  annual  expendi- 
ture of  the  Pension  Bureau  did  decrease  some  seven 
millions. 

Now,  however,  the  annual  disbursement  on  that 
account  increased  from  $27,137,019  in  1878  to 
$61,345,193  in  1882,  and  the  new  Congress,  in  its 
session  during  the  spring  of  1882,  appropriated  for 
pensions  in  the  ensuing  fiscal  year  no  less  a  sum 
than  $ioo,cxx),ooo.  In  similar  spirit,  these  legis- 
lators had  applied  themselves  to  Federal  outlay 
for  river  and  harbor  work.  During  previous  ad- 
ministrations, such  appropriations  had  ranged  from 
$3,975,000  in  the  session  of  1870  to  $8,201,700  in 
1878.  The  budget  began  to  rise,  even  before  the 
Forty-seventh  Congress,  elected  in  1880,  came  into 
power;  but  this  body,  once  assembled,  broke  all 
records.  In  its  first  session,  river  and  harbor  ap- 
propriations reached  the  wholly  unprecedented  sum 
of  $18,743,875.  Angry  criticism  at  this  extrava- 
gance was  already  spreading  in  the  press  and  in 
popular  discussion,  and  the  nature  of  the  policy  now 
pursued  by  Congress  was  powerfully  illustrated  by 
the  veto  episode  of  1882.  In  August  of  that  year, 
President  Arthur  refused  his  signature  to  the  Rivef 
'  Congressional  Globe,  January  aj,  1873. 


90  American  Finance  ci882 

and  Harbor  Bill,  on  the  grounds  of  its  unconstitu- 
tionality and  unwarranted  diversion  of  public  funds.* 
Within  twenty-four  hours  the  bill  was  passed  over 
this  Presidential  veto,  and  the  majority  of  votes 
to  override  the  veto  came  from  Administration 
Congressmen. 

This  incident  happened  at  an  unfortunate  moment 
for  the  ruling  party.  Up  to  this  time  the  annual 
elections  had  been  influenced  by  the  remarkable 
prosperity  of  the  country,  which  served,  as  such  con- 
ditions usually  do,  to  sustain  the  popular  approval 
of  the  party  in  power.  Severe  reactions  of  public 
sentiment  are  not  unusual  in  the  year  after  a  Presi- 
<lential  victory;  but  the  vote  of  November,  1881, 
had  been  decidedly  favorable  to  the  Republican 
party.  Even  in  such  States  as  Ohio,  New  Jersey, 
Iowa,  Wisconsin,  and  Michigan,  the  dominant  party 
had  retained  its  advantage  of  1880.  We  have  seen, 
however,  that  the  trade  advantage  was  largely  lost 
before  the  autumn  of  1882.  The  fall  in  wheat  and 
Cotton,  however  inevitable,  had  aroused  a  feeling  of 
discontent  in  the  West  and  South.  In  the  East,  the 
large  gold  exports  and  the  irregular  money  market 
had  embarrassed  trade  sufficiently  to  make  the  people 
willing  to  listen  to  criticism  of  public  policy.  When 
the  action  of  Congress  was  as  vulnerable  to  criticism 
as  was  that  of  the  spring  session  of  1882,  it  is  not 
surprising  that  the  opposition  party  made  the  recent 
legislative  extravagance  the  text  of  its  campaign 
declarations.  Partisan  use  of  the  "  spoils  "  of  1880, 
and  the  very  rash  attempt  of  the  Executive  to  control 

'  V«to  Message,  August  i,  i88a. 


1882]  The  Congressional  Elections  91 

the  nomination  for  Governor  of  New  York,  were 
also  called  into  public  question ;  but  since  Congres- 
sional elections  were  impending,  the  record  of  Con- 
gress itself  naturally  played  the  leading  part.  The 
Republicans  themselves  could  not  fail  to  recognize 
the  importance  of  this  issue.  So  peculiarly  embar- 
rassing was  the  veto  episode  to  the  Administration 
party,  that  even  the  New  York  Republican  State 
convention  formally  applauded  the  President's 
**  courage  in  resisting  the  enactment  of  the  River 
and  Harbor  Bill,  which  violated  the  accepted  rules 
of  constitutional  power."  ' 

This  was  hardly  a  serviceable  "  plank "  for  a 
Congressional  campaign.  Meantime  the  opposition 
not  only  assailed  the  extravagant  expenditures,  but 
demanded  that  the  excessive  revenue  which  made 
them  possible  should  be  cut  down  by  remission  of 
taxation.  In  short,  the  Administration  party,  no 
longer  helped  by  seemingly  unlimited  prosperity,  was 
clearly  on  the  defensive,  and  the  result  was  an  over- 
whelming Republican  defeat.  A  Republican  plural- 
ity of  twelve  in  the  Forty-seventh  Congress  was 
turned  in  the  Forty-eighth  into  a  Democratic  plural- 
ity of  seventy-seven.  Congressional  delegations  from 
States  such  as  New  York  and  Ohio,  in  which  a  large 
majority  of  the  successful  candidates  in  1 880  had  been 
Republicans,  were  returned  in  1882  with  an  almost 
equally  large  majority  of  Democrats.  Alonzo  B.  Cor- 
nell had  been  elected  Governor  in  New  York  State 
in  1879  ^y  ^  Republican  plurality  of  42,777;  in 
1882,  Grover  Cleveland  was  chosen  Governor  on  the 
'  September  21,  i88a. 


92  American  Finance  tl882 

Democratic  ticket  by  a  plurality  of  192,854.  Robert 
E.  Pattison,  running  for  Governor  of  Pennsylvania 
on  the  Democratic  ticket,  carried  that  Republican 
stronghold  by  40,202  plurality.  In  States  as  widely 
separated  as  Connecticut,  Michigan,  Kansas,  Colo- 
rado, and  California,  the  Democrats  reversed  majori- 
ties from  the  previous  elections  and  carried  their 
candidates  for  Governor  into  office.  The  tide  of 
political  reaction  ran  so  high  in  Massachusetts  that 
General  B.  F.  Butler,  who  had  captured  the  Demo- 
cratic nomination  despite  his  inflationist  record,  was 
chosen  Governor  by  a  plurality  of  13,949. 

This  sweeping  opposition  victory  was  at  once 
accepted  as  a  verdict  for  revision  of  the  revenue.  It 
was  publicly  admitted,  even  by  recognized  friends 
of  the  protective  system,  that  a  "  substantial  reduc- 
tion of  tariff  duties  "  was  **  demanded,  not  by  a 
mere  indiscriminate  popular  clamor,  but  by  the  best 
conservative  opinion  of  the  country. "  '  In  Congress, 
however,  there  was  a  strong  minority,  determined 
to  resist,  by  whatever  means,  any  concession  from 
the  protective-tariff  theory.  This  faction  had  so  far 
anticipated  the  situation  as  to  secure  in  May,  1882, 
the  appointment  of  nine  commissioners  from  civil 
life  to  investigate  the  entire  question  of  the  tariff, 
and  to  report  its  findings  to  Congress  in  December. 
The  move  was  clever;  for  the  President  named  a 
protectionist  commission,  with  the  president  of  the 
Wool  Manufacturers*  Association  at  its  head,'  and 
when  Congress  assembled  in  December,  the  com- 

■  Report  of  Tariff  Commission,  1882,  i.,  p.  5. 

»  Taussig,  Tariff  History  of  thcJJmted  States,  pp.  230-233. 


1 882 J  Tariff  Revision  Demanded  93 

mission's  voluminous  report  and  recommended  bill 
were  ready. 

The  commission's  recommendations  were  not, 
however,  altogether  what  its  creators  had  expected. 
According  to  its  own  statement  to  Congress,  the 
commission's  bill  aimed  at  an  average  reduction  in 
tariff  rates  of  not  less  than  twenty  per  cent.'  This 
proposed  reduction,  as  the  president  of  the  commis- 
sion afterwards  declared,  was  an  unwilling  "  conces- 
sion to  public  sentiment,"  *  and  the  uncompromising 
faction  did  some  singular  work  with  it  in  Congress. 
The  commission  bill  was  either  blockaded  or  radi- 
cally altered,  first  in  one  house  and  then,  on  a 
different  basis,  in  the  other.  Eventually  the  House 
and  Senate  disagreed,  whereupon  a  conference  com- 
mittee, after  a  plan  which  later  gained  even  more  ce- 
lebrity, settled  a  compromise  by  raising  duties  higher 
than  those  proposed  by  either  branch  of  Congress.' 
In  the  end,  while  numerous  duties — those  on  cloths 
especially — were  reduced,  other  and  equally  impor- 
tant tariffs,  such  as  those  on  metal  manufactures, 
were  materially  increased.  Since  it  was  doubtful  if 
these  conflicting  changes  in  the  import  duties  would 
reduce  the  revenue.  Congress  applied  itself  to  the 
internal  taxes.  Under  the  Revenue  Act  of  1872, 
with  its  later  amendments,  manufactured  cigars  had 
been   assessed   six   dollars   per  thousand,  and  had 

^  Report  of  Tariff  Commission,  1882,  i.,  p.  6. 

'  John  L.  Hayes  in  Bulletin  of  Wool  Manufacturers,  quoted  in 
Taussig,  p.  254. 

•  W.  R.  Morrison,  House  of  Representatives  speech,  March  3, 
1883 ;  J.  B.  Beck,  U.  S.  Senate  speech,  March  2,  1883. 


94  American  Finance  nesa 

yielded  $18,000,000  annually;  the  tax  was  now  re- 
duced to  three.  On  tobacco,  the  impost,  which 
produced  in  1882  $25,000,000,  was  cut  down  from 
sixteen  cents  a  pound  to  eight. 

There  has  been  a  curious  fatality  in  the  coincidence 
of  tariff  revision,  in  this  country,  with  trade  reaction. 
The  Tariff  Acts  of  1872,  of  1883,  of  1890,  and  of  1894, 
in  every  case  accompanied  or  shortly  preceded  a 
period  of  serious  commercial  distress,  and  the  coinci- 
dence has  been  plausibly  used  by  opponents  of 
revenue  revision.  Now  it  cannot  well  be  questioned 
that  the  American  practice  of  ripping  up  by  whole- 
sale a  complicated  import  tariff  runs  two  very  serious 
risks.  It  is  pretty  sure  to  derange  at  least  one 
season's  plans  in  the  industries  affected,  and  it  is 
apt  to  make  a  bad  miscalculation  as  to  future  pub- 
lic revenue.  Of  this  second  possibility,  we  shall 
find  some  very  forcible  examples  in  our  review  of 
1890  and  1894.  How  far,  if  at  all,  these  later  meas- 
ures were  a  factor  in  the  subsequent  trade  reactions, 
we  shall  then  inquire.  It  has  been  very  commonly 
asserted  that  the  change  of  import  duties  during 
1883  had  such  unfavorable  influence.  The  Tariff 
Act  became  a  law  in  March,  1883;  public  revenue 
decreased  $50,000,000  in  the  twelve  months  ending 
with  June,  1884,  and  something  like  $25,000,000  in 
the  fiscal  year  1885  ;  and  in  1884  the  financial  situa- 
tion reached  a  crisis.  To  those  who  opposed  any 
change  in  the  protective-tariff  system,  the  inference 
was  accordingly  drawn,  that  the  tariff  changes  caused 
the  trade  reaction. 

Yet  the  argument  as  applied  to  1883  has  absolutely 


1883]  Tariff  and  Revenue  95 

no  foundation.  The  reduction  in  revenue,  to  begin 
with,  was  no  larger  than  the  advocates  of  an  altered 
tariff,  including  the  Secretary  of  the  Treasury,  had 
originally  recommended.'  Under  the  Act  of  1883, 
the  revenuie  reached  its  lowest  point  in  the  fiscal 
year  1885  ;  yet  there  was  a  surplus  revenue,  even  in 
that  year,  pf  $63,463,771 — larger  by  thirty  per  cent, 
than  the  requirements  of  the  Sinking  Fund.  The 
bulk  of  such  reductions  as  were  actually  made  by 
Congress  came,  as  the  framers  of  the  Law  of  1883 
intended,  in  the  excise  schedules.  The  Adminis- 
tration had  opposed  reduction  of  these  taxes,  which 
were  a  charge,  not  on  necessities  but  on  luxuries,  and 
the  change  was  nowhere  seriously  advocated  in  the 
electoral  campaign  of  1882.*  But  Congress,  under 
the  influences  already  noticed,  wholly  ignored  such 
well-knowji  facts. 

Nothing  can  better  prove  the  purpose  of  the 
legislators  than  the  original  title  of  the  Law  of 
1883:  "  a  bill  to  reduce  internal  taxation."  We 
have  seen  already  that  taxes  on  tobacco  manufac- 
tures were  reduced  forty  to  fifty  per  cent. ;  in  the 
preceding  fiscal  year  they  had  yielded  $47,CXDO,ooo 
revenue.  Taxes  on  bank  deposits,  capital,  and 
checks,  and  on  other  miscellaneous  objects,  had 
hitherto  yielded  annually  upwards  of  $io,ooo,cx»; 
these  taxes  were  abolished.  Here,  then,  was  $31,- 
000,000  struck  off  deliberately,'  without  considering 

*  Secretary  Folger,  Treas.  Rep.,  1882,  p.  xxix. 

*  President  Arthur,  Annual  Message,  December  4,  1883  ;  Secretary 
Folger,  Treas.  Rep.,  1882,  p.  xxxi. 

Commissioner  of  Internal  Revenue,  Treat.  Ref.,  i88s,  p.  73; 
1884,  p.  79. 


96  American  Finance  [i883 

the  movement  of  the  customs  revenue.  But  the 
conclusive  proof  that  changes  in  the  import  duties 
did  not  affect  the  fall  in  revenue  is  shown  by  the 
average  rate  imposed  and  collected  before  and  after 
the  Act  of  1883.  By  the  official  record,  average  rate 
of  duty  actually  collected  during  the  fiscal  year  1883 
(less  than  four  months  of  which  came  under  the  new 
tariff)  was  42.45  per  cent.,  whereas  in  1885  the  aver- 
age rate  had  risen  to  45.86.' 

The  financial  troubles  of  1884,  then,  did  not  in 
any  respect  arise  from  changes  in  the  tariff.  What 
did  occasion  the  misgivings  with  which  that  year 
began  is  not  at  all  difficult  to  discover.  For  the 
time  had  now  arrived  to  test  the  question  whether 
it  was  possible,  with  the  existing  supply  of  other 
forms  of  currency,  to  circulate  twenty-five  million 
new  silver  dollars  annually.  Even  in  1882,  the 
Treasury  authorities^warned  Congress  that  the  seem- 
ing demand  for  silver  in  the  interior  was  artificial 
and  temporary,  and  that,  despite  this  demand,  a 
slow  but  ominous  displacement  of  the  Treasury's 
gold  with  silver  was  already  in  progress.*  Congress 
had  replied  only  by  its  attempt  to  break  down 
the  prohibitory  rule  of  the  New  York  Clearing- 
House,  and  thus  force  the  dollars  into  Eastern 
circulation. 

After  the  very  general  reactions  in  the  markets  of 
1882,  Ihe  volume  of  interior  trade  decreased  con- 
tinuously; a  logical  outcome,  certainly,  of  the  dis- 

*  U.  S.  Bureau  of  Statistics,  Annual  Rep,,  1892,  p.  bcxvii. 
•Secretary  Folger,   Treas.  Rep.,  1882,  pp.  xii.,  xiii ;   Treasurey 
CilfilUn,  ibid.,  pp.  365,  369. 


1884]  Financial  Distress  97 

covery  that  production  had  far  outrun  the  imme- 
diate  home  and  foreign  demand.  Genuine  trade 
demand  for  money,  in  any  country,  is  accurately 
measured  by  the  bank  exchanges  of  a  season  at  the 
commercial  centres.  Now  in  1881,  these  exchanges 
in  the  leading  American  cities  were  larger  by  nearly 
sixty  per  cent,  than  those  of  1879,  ^''^^  ^^^  decrease 
in  1882  was  only  slight.  But  total  exchanges  at  the 
same  points  in  1883  decreased  fourteen  per  cent, 
from  1882;  in  1884,  they  fell  off  eighteen  per  cent, 
further.'  While,  therefore,  the  silver  currency  was 
increasing  with  unaltered  regularity,  opportunity  for 
its  employment  was  decreasing  even  more  rapidly. 
The  question  as  to  the  movement  of  silver  coin,  in 
default  of  continuous  commercial  expansion,  was 
now  answered  very  emphatically.  In  1883,  as  in 
the  spring  of  1880,  a  silver  surplus  again  began  to 
pile  up  in  the  Treasury.  Foreign  exchange  moved 
heavily  against  us.  Europe  not  only  bought  from 
the  United  States  the  smallest  amount  of  merchan- 
dise in  five  years,  but  it  sold  on  the  American 
markets  as  large  a  supply  of  f(  reign  goods  as  that 
of  1880,  and  sold  in  addition  a  heavy  instalment  of 
its  American  securities.  In  March,  1884,  $12,200,- 
000  gold  was  shipped  to  Europe;  in  April,  $21,006,- 
000.  Payment  of  gold  in  public  revenue  decreased 
rapidly;  payment  in  silver  as  rapidly  increased. 
The  crisis  foreshadowed  in  1880  by  Secretary  Sher- 
man seemed  to  be  imminent. 

The  so-called  panic  of  1884,  an  immediate  conse- 
quence of  these  disquieting  developments,  chiefly 

'  New  York  Financial  Chronicle ^  January  17,  1885. 


98  American  Finance  [i884 

affected  the  security  markets.  It  was  provoked,  first, 
by  the  heavy  liquidation  of  securities,  already  no- 
ticed, and  by  the  embarrassment  of  several  over-cap- 
italized railway  companies;  second,  by  uneasiness 
over  the  currency  situation,  which  was  decidedly  em- 
phasized, in  February,  by  the  ill-judged  hint  of  the 
local  Treasury  authorities  that  it  might  be  deemed  ad- 
visable to  force  out  silver  through  the  Treasury  pay- 
ments at  New  York.'  This  rumor  had  an  influence 
much  like  that  of  a  similar  Treasury  rumor  in  the 
financial  uneasiness  nine  years  later.  But  the  range 
of  the  resultant  panic  was  not  much  wider  than  New 
York  City,  nor  was  the  financial  crisis  similar  in  grav- 
ity  to  those  of  1 873  and  1 893.  Symptoms  such  as  the 
hoarding  of  currency,  causing  a  public  premium  on 
every  form  of  money;  the  complete  blockade  of 
foreign  and  domestic  exchange,  the  general  run 
upon  the  savings-banks,  the  failure  of  sound  deposi- 
tory institutions,  and  the  temporary  suspension  of 
American  industry,  were  witnessed  in  both  the  earlier 
and  the  later  panic  year ;  but  there  was  nothing  of 
the  kind  in  1884.  Business  in  all  departments  of 
production  was  indeed  seriously  depressed,  and  re- 
sults unsatisfactory,  as  regards  both  volume  of  trade 
and  prices.'  But  the  manner  in  which  the  producing 
and  mercantile  communities  endured  the  money- 
market  strain  proved  pretty  conclusively  two  facts: 
first,  that  the  liquidating  process,  during  the  two 
preceding  years,  had  been  thorough ;  and  second, 
that  underneath  the  crumbling  structure  of  specula- 

*  New  York  Financial  Chronicle,  March  i,  1884. 

*  New  York  Chamber  of  Commerce,  Annual  Rep, ^  1884. 


1884]  The  New  York  Panic  99 

tion  was  a  firm  foundation  of  genuine  and  increased 
wealth.' 

The  stock  markets,  however,  passed  in  May,  1884, 
through  an  acute  and  very  alarming  convulsion ;  led 
up  to  by  the  commercial  depression,  the  flight  of 
foreign  capital,  and  the  disordered  Treasury  finances, 
and  immediately  precipitated  by  the  discovery  of 
several  vast  financial  frauds.  Looking  at  1884  in 
retrospect,  it  would  seem  that  the  financial  com- 
munity for  a  day  or  two  lost  faith  entirely  in  the 
honesty  and  credit  of  its  members.  It  is  no  unusual 
incident  for  a  group  of  swindlers  and  defaulters,  who 
have  escaped  detection  while  their  speculative  "  mar- 
gins "  could  be  sustained,  to  be  exposed  with  mer- 
ciless publicity  when  the  markets  break  suddenly 
away  from  them,  and  the  falling  markets  of  the 
season  found  plenty  of  such  ventures  ripe  for  de- 
struction. But  the  1884  disclosures  were  of  a 
peculiar  order.  The  theft  of  $3,i85,cxx)  of  a  New 
York  City  bank's  securities  by  its  president,  without 
the  least  misgiving  on  the  part  of  its  officers  or 
directors;  the  failure  of  a  second-rate  Wall  Street 
firm  for  $i6,ocx),ooo,  with  assets  of  $67,000;  the 
ruin  of  a  strong  national  bank  through  its  president's 
connection  with  this  firm,  despite  his  knowledge  of 
its  fraudulent  representations ' ;  the  suspension  of 
another  well-known  institution  through  the  notorious 
speculations  of  its  president,* — these  were  disquiet- 
ing developments  enough,  had  they  come  separately 

•  New  York  Financial  Chronicle,  January  3,  1885,  p.  8. 

•  Comptroller  Cannon,  Annual  Treas.  Rep.,  1884,  p.  157. 
»/^V.,  p.  158. 


loo  American  Finance  [i884 

and  singly.  But  when  it  is  considered  that  the  per- 
formances of  John  C.  Eno,  Grant  &  Ward,  the 
Marine  Bank,  and  the  MetropoHtan  Bank,  all  came 
to  public  knowledge  within  a  single  week  and  in  the 
same  community,  the  shock  to  financial  confidence 
is  not  hard  to  understand. 

It  resulted  on  the  Stock  Exchange,  during  a  day 
or  two,  in  what  can  only  be  described  as  a  delirium 
of  panic ;  prices  of  standard  dividend-paying  shares 
collapsing,  from  a  level  already  very  low,  fifteen 
to  twenty  per  cent,  in  as  many  hours,  while  the 
rate  for  loans  on  call  ran  up  as  high  as  three 
per  cent,  a  day.  But  the  spasm  was  not  continu- 
ous; the  low  level  of  security  prices  was  touched 
within  a  very  few  weeks  of  the  acute  collapse. 
Even  the  sudden  and  very  serious  strain  upon  the 
money  market  was  relieved  by  a  contrivance  virtu- 
ally introduced  during  the  panic  of  1873,  whereby 
the  Clearing-House  issued  to  any  bank  in  its  mem- 
bership loan  certificates,  secured  by  the  deposit  of 
that  bank's  securities  to  a  value  greater  by  twenty- 
five  per  cent,  than  the  certificates  allotted,  and 
receivable  in  lieu  of  cash  in  settlement  of  balances 
at  the  Clearing-House.  Through  this  emergency 
device,  banks  whose  cash  reserves  were  impaired 
during  the  panic  avoided  actual  suspension.  Against 
deposit  with  the  Clearing-House  of  sound  commer- 
cial paper  not  at  the  moment  marketable,  they  took 
out  $24,91 5,000  of  such  loan  certificates,  thus  tiding 
over  the  worst  of  the  money-market  crisis.'  We  shall 
encounter  this  noteworthy  banking  makeshift  again, 

'  Comptroller  Cannon,  Annual  Treas.  Rep.,  1884,  pp.  139,  IS3« 


18841  Fall  in  Agricultural  Prices  lOl 

under  still  more  interesting  circumstances,  in  our  re< 
view  of  1893. 

This  New  York  panic  in  the  spring  was  followed 
by  a  heavy  fall  in  agricultural  prices;  partly  occa- 
sioned, perhaps,  by  the  disordered  money  markets, 
but  chiefly  by  the  immense  increase  of  home  and 
foreign  production.  The  American  grain  crop  of 
1884  was  larger  even  than  that  of  1882;  the  whole 
world's  wheat  production  was  twelve  per  cent,  larger 
than  the  crop  of  1878,  under  which,  it  will  be  remem- 
bered, prices  had  broken  continuously.'  In  1884, 
the  price  of  wheat  fell  lower  than  in  1878;  in  other 
staple  products,  prices  fell  nearly  to  the  level  of  the 
earlier  year  of  depression.  If,  as  had  been  argued 
in  the  debates  of  1878,  the  fall  in  prices  was  caused 
by  an  insufficient  currency,  no  such  result  ought  to 
have  been  expected  in  1884;  for  notwithstanding 
the  gold  shipments  of  the  year,  the  total  money 
supply  in  circulation  in  the  United  States  had  in- 
creased $425,000,000,  or  fifty  per  cent.,  since  the 
resumption  of  specie  payments.* 

The  debaters  of  1878  were  not  familiar,  however, 
with  the  statistics  of  foreign  grain  production.  Neces- 
sities of  life  can  never,  strictly  speaking,  be  * '  over-pro- 
duced," but  they  may  be  produced  in  such  quantity 
that,  in  order  to  sell  them  all,  new  customers  must  be 
brought  in  by  fixing  a  lower  range  of  prices.  The 
world's  product  of  wheat,  in  1884,  was  not  only  the 
largest  in  history,  but  it  was  not  equalled  again  dur- 
ing the  next  half-dozen  years.'    The  average  price  of 

•  Liverpool  Com-  Trade  News  estimates. 

'  Trtas.  Rep.,  1884.      '  Liverpool  Corn-Trade  News  estimates. 


I02  American  Finance  [1884 

wheat  in  1884,  accordingly,  was  not  only  the  lowest 
ever  touched  up  to  that  time  in  American  history, 
but  it  was  also  lower  than  any  yearly  average  there- 
after until  1892.*  Public  authorities  on  agriculture 
flatly  declared  that  there  was  no  profit  in  raising 
wheat  at  the  prices  of  1884.*  This  was  undoubtedly 
an  exaggeration;  but  when  a  National  Bureau  of 
Agriculture  published  such  a  statement,  it  is  not 
difficult  to  guess  what  must  have  been  the  feeling 
of  the  farmer. 

The  Republican  party  went  into  the  Presidential 
campaign  of  1884  under  this  double  handicap  of 
acute  financial  depression  in  the  East  and  unfavor- 
able agricultural  markets  in  the  West.  It  was  bur- 
dened, in  addition,  with  its  failure  to  modify  the 
tariff  in  the  direction  of  lower  duties — a  failure 
which  drove  into  renewed  opposition  the  element 
which  won  the  election  of  1882.  The  fact  that,  even 
against  these  odds,  the  Republican  party  actually 
came  within  23,000  votes  of  ia  plurality  on  the  whole 
country's  popular  vote  of  November,  1884,  proves 
how  powerful  was  the  prestige  gained  through  the 
achievement  of  resumption.  As  it  turned  out,  how- 
ever, the  party  was  defeated,  the  vote  of  New  York 
State  against  Mr.  Blaine  turning  the  scales. 

The  Democratic  party  thus  obtained  control  of 
the  National  Administration,  for  the  first  time  in 
twenty-four  years.  It  inherited  from  its  predecessor 
a  very  serious  financial  situation,  the  outcome  of 
which,  when  President  Cleveland  took  office  in  1885, 

"  U.  S.  Statistical  Abstract,  1896,  p.  293. 
.  *  U.  S.  Department  of  Agriculture,  Annual  Rep.,  x88s,  p.  948. 


1884]  The  Silver  Trouble  Again  103 

was  extremely  doubtful.  The  pessimism  prevalent 
even  in  the  Administration  which  relinquished  office 
was  frankly  voiced  in  its  final  Treasury  report. 
Through  a  curious  irony  of  fortune,  Hugh  Mc- 
CuUoch,  whose  own  plan  of  resumption  had  been 
repudiated  eighteen  years  before,  was  called  again 
to  the  Treasury,  in  his  old  age  and  in  the  closing 
months  of  the  Arthur  Administration,  to  witness 
what  seemed  to  be  the  undermining  of  the  Sherman 
resumption  plan.  His  view  of  the  situation  was 
wholly  discouraging.  "  Silver  certificates,"  he 
wrote  in  his  report  of  December,  1884,  "  are  taking 
the  place  of  gold  "  ;  "a  panic  or  an  adverse  current 
of  exchange  might  compel  the  use  in  ordinary  pay- 
ments by  the  Treasury  of  the  gold  held  for  the  re- 
demption of  the  United  States  notes,  or  the  use  of 
silver  or  silver  certificates  in  the  payment  of  its  gold 
obligations."  '  On  one  occcasion,  the  Treasury  be- 
gan to  force  out  silver  through  the  Clearing-House.' 
Mr.  McCulloch's  gloomy  forecast  was  confirmed 
by  the  new  Executive.  "  Silver  and  silver  certifi- 
cates have  displaced  and  are  now  displacing  gold," 
wrote  the  President-elect,  early  in  1885;  adding 
that  the  part  of  the  Treasury's  gold  reserve  pledged 
for  redemption  of  the  legal  tenders,  "  if  not  already 
encroached  upon,  is  perilously  near  such  encroach- 
ment."' 

'  Treas.  Rep.,  1884,  p.  xxxi. 

*  Assistant-Treasurer  Graves's  reply  to  H.  R.  resolution,  Feb.  10, 
1885. 

•  Grover  Cleveland,  letter  to  A.  J.  Warner  and  others,  February 
34.  1885. 


i 

• 

M 

^4 

CHAPTER  V 

THE  SURPLUS  REVENUE 

ALMOST  the  first  act  of  the  Cleveland  Adminis- 
tration, in  its  management  of  the  Treasury, 
suggested  that  Government  finances  were  in  imme- 
diate and  serious  straits.  Its  surplus  gold  reserve, 
by  midsummer,  1885,  was  down  to  $115,000,000 — 
hardly  more  than  was  held  at  the  resumption  of 
specie  payments;  this  reserve  was  falling  three  or 
four  millions  every  month,  and  the  July  interest- 
payments  drew  on  it  heavily.  The  Treasury's  sur- 
plus of  silver  dollars  meantime  had  risen  by  July  to 
the  unprecedented  sum  of  $71,500,000,  and  was  in- 
creasing two  to  three  million  dollars  monthly.  The 
recourse  first  adopted  by  the  Treasury  was  an  appeal 
to  the  New  York  banks  for  help.  These  institu- 
tions responded  by  turning  over  to  the  Treasury  in 
July  of  1885  some  $5,915,000  gold  from  their  own 
reserves,  taking  in  place  of  it  fractional  silver  coin, 
of  which  the  Treasury  happened  then  to  have  on 
hand  an  exceptionally  large  supply.  *  As  a  precedent, 
this  action  was  important ;  as  a  permanent  solution 

•  New  York  Financial  Chronicle,  July  8  and  July  25,  1885. 
104 


1885]      Cleveland  Administrations  Plans      105 

of  the  Treasury's  difficulties,  it  was  quite  as  fruitless 
then  as  the  similar  recourse  was  in  1893  and  1894. 
The  silver,  after  being  held  by  the  New  York 
Clearing- House  for  three  or  four  months,  as  security 
for  certificates  issued  to  its  owners  and  used  in  bank 
exchanges,  was  returned  to  the  Treasury  for  legal 
tenders.' 

Fortunately,  the  new  Administration  did  not  base 
its  subsequent  operations  on  makeshifts  such  as  this. 
What  it  did  undertake  was  very  interesting.  It  had 
been  observed,  in  connection  with  the  outflow  of 
legal-tender  currency  to  the  interior  during  and  after 
1879,  that  bills  in  small  denominations  were  most 
apt  to  stay  in  circulation.  In  the  two  years  1880 
and  1 88 1,  for  instance,  the  Treasury  paid  out  some 
$70,000,000  Government  notes  in  one-,  two-,  and 
five-dollar  bills.  Against  this  outflow  of  small  notes, 
only  $46,000,000  was  paid  back  to  the  Treasury, 
during  the  period,  in  notes  of  the  same  denomina- 
tions. On  the  other  hand,  the  Treasury  received  in 
revenue  during  the  same  two  years,  in  notes  for  one 
hundred  dollars  and  upwards,  four  times  as  large  a 
sum  as  it  paid  out.*  I  have  already  called  attention 
to  the  automatic  law  under  which  a  bank  keeps  on 
hand  for  permanent  circulation  the  currency  needed 
by  its  depositors  for  daily  uses ;  passing  along,  there- 
fore, in  settlements  with  other  banks  or  with  the 
Treasury,  such  forms  of  currency  as  its  depositors 
do  not  need.  The  failure  of  the  small  notes  to  re- 
turn from  circulation  had  proved,   therefore,  that 

'  New  York  Financial  ChronicU,  November  7,  1885. 
•  Trtas.  Rep.,  i88i,  p.  426. 


io6  American  Finance 


[1885 


such  denominations  could  be  kept  in  constant  use. 
Nor  is  this  preference  hard  to  understand.  Wages 
are  paid  in  bills  for  five  dollars  or  less;  retail  pur- 
chases rarely  require  exchange  of  anything  larger 
than  a  ten-dollar  bill.  Very  few  people  carry  about 
with  them  currency  in  bills  of  one  hundred  or  five 
hundred  dollars,  but  every  citizen  is  apt  to  have  in 
his  pocket-book  a  handful  of  paper  money  in  the 
smaller  denominations.  The  pocket-books  of  sixty 
million  citizens,  with  business  active,  are  capable  of 
absorbing  permanently,  in  this  way,  enormous  sums. 
Now  the  framers  of  the  Silver  Act  of  1878  had  an 
idea  that  silver  dollars  would  serve  exactly  such  a 
purpose.  In  this  they  were  mistaken.  The  people 
would  not  take  these  heavy  coins  in  any  quantities 
from  their  depositories ;  they  insisted  on  being  sup- 
plied with  other  forms  of  currency ;  so  much  so  that 
in  1885  ^  million  more  than  the  whole  year's  silver- 
dollar  coinage  came  back  to  the  Treasury.'  The 
people  had  not  the  same  objection  to  the  silver  cer- 
tificates. As  we  saw  in  studying  the  results  of  the 
silver  shipments  south  and  west  after  1880,  the 
recipients  of  these  dollars  turned  them  back  to  the 
nearest  sub-treasury  in  exchange  for  silver  certifi- 
cates, but  they  took  the  certificates  readily  enough. 
But  the  provision  of  the  Law  of  1878  that  silver 
certificates  should  not  be  issued  in  denominations  of 
less  than  ten  dollars  prevented  their  use  for  ordinary 
retail  purposes.  Such  a  provision  virtually  declared 
that  there  should  be  no  pocket-money,  the  per- 
manent circulating  medium,  in  that  form  of  currency. 

'  Treasurer  Jordan,  Annual  Treas.  Rep.^  1886,  p.  78. 


1886]  Small  Silver  Certificates  107 

The  Treasury  now  undertook  to  reverse  this  situa- 
tion. The  people  had  the  legal-tender  notes  which 
the  Treasury  needed  to  facilitate  its  own  New  York 
exchanges,  and  they  would  not  take  the  silver  cur- 
rency which  was  embarrassing  the  Treasury.  Might 
it  not,  then,  be  possible  to  issue  silver  certificates  in 
one-,  two-,  and  five-dollar  denominations,  and  mean- 
time to  hold  back  in  the  Treasury  reserve  such  small 
legal-tender  notes  as  should  from  time  to  time  be 
received  in  revenue  ?  The  project  would,  of  course, 
involve  the  establishment  of  store-houses  for  the  idle 
silver  dollars  held  against  the  certificates  outstand- 
ing. Even  in  1885,  one  hundred  million  of  the  coins 
were  thus  stored  away.  But  the  plan  would  serve 
at  any  rate,  if  successful,  to  transfer  ownership  of 
these  dollars  from  the  Treasury  to  outsiders;  it 
would  substitute  another  form  of  money  in  the 
Treasury's  own  balances,  and,  what  was  more  im- 
portant, it  would  prevent  the  silver  currency  from 
coming  back  in  the  revenue  in  such  quantities  as 
to  embarrass  the  Treasury's  operations.  If  the 
people  were  to  keep  the  silver  certificates  for  their 
daily  uses,  heavy  payments  to  the  Government  must 
be  made  in  gold  or  legal  tenders,  and  either  currency 
could  be  freely  used  again  in  all  Clearing- House  ex- 
changes. 

The  new  Administration  began  by  keeping  in  the 
Treasury  all  of  the  one-  and  two-dollar  leg^l  tenders 
paid  to  it,  and  by  using  in  its  own  disbursements 
only  notes  in  large  denominations.  This  policy  had 
prompt  results.  Within  a  year,  complaint  of  the 
scarcity  of  small  notes  came  in  from  various  sections 


io8  American  Finance  [I886 

of  the  country;  and  in  1886  Congress  was  asked  to 
permit  the  issue  of  silver  certificates  in  small  denom- 
inations. Congress  consented  grudgingly,  and  in 
August,  1886,  it  authorized  the  issue  of  such  silver 
currency  in  one-,  two-,  and  five-dollar  bills,  and  the 
exchange  of  large  silver  certificates  for  an  equal 
amount  in  small  denominations.  With  this  author- 
ity, the  Treasury  tried  at  once  the  experiment  of 
dislodging  the  legal  tenders  from  the  people's  pocket- 
books  and  replacing  them  with  small  silver  certifi- 
cates, and  the  plan  succeeded.  By  1888,  there  were 
$34,ooo,CKDO  less  in  legal-tender  notes  for  one,  two, 
and  five  dollars  in  the  country's  circulation  than  in 
1886,  and  all  this  void  was  filled  by  newly  issued 
silver  currency  in  the  same  denominations. 

Meantime  another  influence  was  at  work,  which 
was  much  more  useful  to  the  Treasury's  plans. 
I  have  mentioned  the  Government  legal-tender  cur- 
rency as  a  permanent  medium  of  retail  circulation ; 
I  have  not  yet  noticed  the  circulating  national- 
bank  notes.  These  notes  were  a  very  important 
factor  in  the  operation  just  described.  In  1884, 
there  were  more  of  the  bank  notes  outstanding  than 
there  were  of  the  legal  tenders,  and  more  than 
half  of  such  outstanding  bank  notes  were  in  denom- 
inations of  ten  dollars  or  less.'  The  demand  for 
currency  in  the  rapid  trade  expansion  after  1879  had 
not  only  attracted  foreign  gold,  and  absorbed  into 
interior  circulation  legal  tenders  and  even  silver,  but 
it  had  stimulated  the  national  banks  to  add  some 
thirty  millions  to  their  circulating  notes.  It  will  be 
'  Comptroller  Cannon,  Trtas,  Rep.,  1884,  p.  186. 


1886]  Retirement  of  National  Bank  Notes    109 

recalled  that  the  check  to  trade  activity,  after  the 
summer  of  1882,  sent  gold  back  to  Europe  and  silver 
and  Government  notes  back  to  the  Eastern  banks 
and  the  Treasury.  The  same  business  motive,  there- 
fore, which  had  inspired  the  banks,  in  the  three  pre- 
ceding years,  to  increase  their  note  circulation,  now 
encouraged  reduction  of  such  issues. 

Nor  was  the  state  of  trade  the  only  motive  for 
such  reduction.  Under  the  National  Banking  Law, 
a  bank  wishing  to  issue  notes  was  required  to  deposit 
Government  bonds  with  the  Treasury,  against  which 
it  would  receive  in  its  own  notes  ninety  per  cent,  of 
the  par  value  of  the  bonds  deposited.  This  is  an 
admirable  contrivance  to  ensure  soundness  in  a  bank- 
note circulation,  but  a  very  doubtful  expedient  to 
ensure  its  permanency.  The  Bank  of  England  is 
not  allowed  to  sell  the  public  securities  on  which  its 
circulation  rests;  the  banks  of  the  United  States 
have  a  perfect  right  to  do  so,  provided  they  retire 
the  circulation  issued  against  such  bonds.  Not  only 
did  the  banks  possess  the  right  of  sale,  but  in  the 
case  of  bonds,  like  the  three  per  cents,  redeemable 
on  call,  banks  were  forced  to  surrender  both  bonds 
and  circulation  when  the  Government  was  paying 
out  its  surplus.  In  1883,  upwards  of  $353,000,000 
Government  bonds  were  on  deposit  as  a  basis  of 
bank-note  circulation.  Out  of  this  total,  more  than 
$200,000,000  were  in  the  three  per  cents,'  and  it 
was  naturally  these  very  three  per  cents  which  the 
Treasury  selected  in  its  public-debt  redemptions. 
Whenever  such  bonds  were  called  for  redemption,  the 
»  Treat.  Rep.,  1883,  p.  218. 


no  American  Finance  [I886 

bank  possessing  them  was  compelled  either  to  replace 
them  with  other  Government  issues  bought  on  the 
open  market,  or  else  to  retire  its  circulating  notes. 
Under  the  circumstances,  it  is  not  surprising  that 
the  circulation  was  surrendered.  Fully  three  fourths 
of  the  bank  notes  thus  retired  from  circulation  were 
in  small  denominations ;  and  this,  of  course,  signified 
growing  scarcity  in  money  available  for  small  ex- 
changes. 

Secretary  Manning  and  his  associates  in  the 
Treasury  were  too  sagacious  observers  of  the  under- 
currents of  finance  to  have  failed  to  reckon  this  bank- 
note movement  into  their  plans  for  disposing  of  the 
surplus  silver.'  But  even  the  public  men  who  dis- 
cerned this  curious  phenomenon,  and  correctly 
pointed  out  its  meaning,  could  hardly  have  imagined 
how  far  the  contraction  of  the  currency,  thus  au- 
tomatically begun,  was  destined  to  be  carried.  In 
1886,  at  the  very  time  when  the  issue  of  small  silver 
certificates  was  authorized,  began  the  second  enor- 
mous rise  in  public  revenue  since  resumption.  In 
1885,  excess  of  Government  income  over  expendi- 
ture was  $63,463,771 ;  it  increased  thirty  millions  in 
the  next  twelve  months;  by  1888  it  had  reached  the 
sum  of  $119,612,115. 

The  particular  causes  of  this  surplus  revenue, 
whose  consequences  in  many  different  directions 
were  destined  to  be  of  the  utmost  importance,  we 
shall  presently  examine.  Its  influence  on  the  cur- 
rency was  immediate.  To  avoid  direct  contraction 
through  heaping  up  a  constantly  increasing  sum  of 

'  Treasurer  Jordan,  Treas.  Rep.^  1886,  p.  100. 


1888]  Silver  Currency  Circulated  1 1 1 

money  in  the  Treasury,  the  Government  again  en- 
larged its  purchases  of  outstanding  bonds.  In  the 
fiscal  year  1886  it  had  bought  only  $50,ooo,cxX); 
in  1887  it  purchased  $i25,cxx),ooo;  in  1888,  $130,- 
000,000.  When,  later  on,  the  three  per  cents,  re- 
deemable at  the  Government's  will,  had  all  been 
retired  through  such  purchases,  the  Treasury  began 
to  bid  in  the  open  market  for  its  unmatured  bonds. 
Banks  which  had  paid  102  in  1879  ^^r  the  four  per 
cents,  for  instance,  and  had  since  employed  the 
bonds  as  a  basis  of  circulation,  were  now  offered  a 
steady  market  for  them  at  125  or  higher.  The 
temptation  to  accept  such  profit  was  strong,  and  the 
banks  accordingly  began  to  retire  the  circulation 
based  on  the  four  per  cents.  Between  1886  and 
1890,  national  bank-note  circulation  decreased  $126,- 
000,000,  nearly  one  half  this  decrease  being  in  notes 
of  five  or  ten  dollars  each.     , 

Such  a  reduction  in  the  retail  currency,  coming 
along  with  the  Treasury's  policy  of  keeping  in  its 
own  reserve  the  smaller  legal  tenders,  opened  the 
gate  wide  for  the  silver  certificates.  Even  in  1886, 
the  Treasurer  was  able  to  report  that  the  average 
proportion  of  silver  currency  in  payments  at  the 
New  York  Custom-House  was  barely  twelve  per 
cent.,  against  thirty-six  per  cent,  in  1885,  while  the 
percentage  paid  in  legal  tenders,  which  the  Treasury 
could  freely  disburse  again  through  the  Clearing- 
House,  increased  from  twenty-seven  per  cent,  to 
fifty-nine.'  In  the  eight  years  between  the  passage 
of  the  Silver-Coinage  Law  and  the  middle  of  1886, 

»  Treasurer  Jordan,  Annttal  Trtas,  Rep.,  1886,  pp.  77,  X43. 


112  American  Finance 


[1888 


$150,000,000  silver  coin  and  certificates  had  been 
put  into  general  circulation ;  in  the  four  years  after 
1886,  the  country  absorbed  $200,000,000  more,  and 
this  four-year  increase  happened  coincidently,  as  we 
have  already  seen,  with  a  shrinkage  of  $126,000,000 
in  the  bank-note  circulation. 

The  Treasury's  silver  surplus,  meantime,  was  re- 
duced with  such  rapidity  that  it  fell  from  $97,745,. 
750  at  the  opening  of  August,  1886,  to  $79,641,424 
exactly  one  year  afterwards,  and  to  barely  $19,000,- 
000  before  the  close  of  the  Cleveland  Administra- 
tion. Most  people  will  remember  how  suddenly, 
in  those  years,  they  lost  sight  of  the  once  familiar 
bank-notes  and  small  legal-tender  pocket-money, 
and  found  instead,  in  their  daily  exchanges  of  petty 
cash,  the  new  silver  certificates.  Whoever  noticed 
this  was  unconsciously  observing  the  working-out 
of  one  of  the  most  curious  economic  experiments  of 
the  century. 

For  the  second  time,  therefore,  the  anticipated 
crisis  in  the  currency  was  averted,  and  on  this  occa- 
sion, so  far  as  the  silver  certificates  were  concerned, 
it  was  permanently  set  at  rest.  What  will  occur  in 
relation  to  this  and  other  forms  of  United  States 
currency  in  the  future  is  a  matter  of  simple  guess- 
work. But  with  the  subsequent  halt  in  compulsory 
silver-coinage,  under  the  law  which  will  be  noticed 
in  the  next  chapter,  the  silver  certificates  took  the 
place  of  the  cancelled  bank-notes  in  the  retail  circu- 
lation. In  1 891  the  bank  currency  «^eached  its  lowest 
point  since  1865,  but  even  at  the  close  of  the  fiscal 
year  1896,  the  country's  national  bank-note  circu- 


1888]  Rise  in  Customs  Revenue  113 

lation  was  $i37,ooo,ocx)  less  than  its  maximum  of 
1 882,  and  the  silver  currency  made  up  one  fourth  of 
the  total  money  supply  outside  the  Treasury. 

But  the  solution  of  the  silver  problem,  temporary 
or  otherwise,  had  not  solved  the  problem  of  the 
surplus,  which  now  became  more  awkward  even 
than  in  1882.  It  will  be  necessary,  before  this  singu- 
lar episode  can  be  properly  studied,  to  observe  the 
character  of  the  period  which  gave  rise  to  it.  No 
phenomenon  in  our  financial  history  has  had  more 
immediate  bearing  on  the  strange  chapter  in  Ameri- 
can finance  from  1891  to  1897.  The  United  States 
is  even  now  affected,  in  its  public  finances,  by  the 
traditions  surrounding  the  period  of  the  surplus 
revenue.  The  legislation  of  1890  and  the  financial 
phenomena  of  1893  were  distinct  results,  in  very 
large  measure,  of  the  four-year  period  after  1886. 
Neither  1890,  nor  1893,  nor  indeed  the  succeeding 
years  of  American  finance,  can  be  understood  except 
in  the  light  of  the  epoch  which  we  are  now  to 
examine. 

The  excessive  rise  in  surplus  revenue,  after  1886, 
happened  in  spite  of  a  further  considerable  increase 
in  public  expenditure.  It  was  partly  caused  by  a 
general  increase  in  the  product  of  internal  taxes,  but 
of  the  total  gain  in  annual  income,  sixty  per  cent, 
was  made  at  the  custom-house.  In  1885,  the  import 
duties  made  the  lowest  yield  of  any  year  under  the 
tariff  of  1883;  in  1890,  under  the  same  law,  they 
had  risen  forty-eight  million  dollars,  reaching  the 
highest  record  in  the  history  of  the  Government, 
before  or  since. 


1 14  American  Finance  [1880 

No  such  increase  would  have  been  possible  with- 
out an  equally  remarkable  increase  in  the  import  of 
foreign  merchandise,  and  no  such  expansion  could 
occur  in  the  import  trade  without  some  notable 
changes  in  the  industrial  situation.  Such  a  change 
had  in  fact  occurred.  As  compared  with  the  re- 
sumption period,  these  years  did  not  reach  the 
high  range  of  prosperity.  They  were,  however, 
a  period  of  great  activity  in  trade.  We  saw  that 
recovery  from  the  1884  collapse  was  rapid.  Prices 
did  not  move  up  as  in  1879  ^^^^  1880,  for  the 
reason  that  foreign  competition,  in  all  branches  of 
production,  including  agriculture,  was  continuous. 
But  profits,  though  irregular,  averaged  fairly  well 
on  a  largely  increased  volume  of  business.  Of  1886 
itself,  contemporary  critics'  wrote  that  it  was  "  the 
best  business  year  since  1880"';  of  1889,  that  it 
"  surpassed  all  predecessors  in  the  volume  of  trade 
movements."*  In  the  dry -goods  industry,  "an 
unusually  large  and  prosperous  trade  was  done  in 
1888,"*  and  in  1889,  "distributors  were  in  such 
good  spirits  that  their  operations  for  the  spring  were 
exceptionally  liberal. ' '  * 

The  active  markets  during  1887  and  1888  induced 
some  repetition  of  the  experiments  of  1880;  wheat 
and  coffee  were  "  cornered  "  on  more  than  one 
occasion  in  the  speculative  markets.  In  the  first 
of  these   two  years  the  experiment   broke  down 

•  New  York  Financial  Chronicle,  Review  of  1886. 
•/W</,,  Review  of  1889. 

*  New  York  Chamber  of  Commerce,  AnnucU  Rtp.^  p.  86, 
*IHd.,  Annual  Rep.,  1889,  p.  83. 


18881  Trade  Expansion  1 1 5 

disastrously,  but  in  September,  1888,  wheat  was 
put  up  to  two  dollars  a  bushel.  The  iron  busi- 
ness was  prosperous.  Between  1885  and  1889,  an- 
nual consumption  of  iron  in  the  United  States 
considerably  more  than  doubled.'  In  1887,  came 
a  decided  rise  in  iron  prices;  a  result,  as  usual, 
of  sudden  demand  for  railway  purposes.  There 
were  laid  down  in  that  year  12,878  new  miles  of 
road,  four  times  the  total  of  1885,  and  the  largest 
year's  construction  in  the  country's  history.*  This 
increase  in  railway  mileage,  which  was  located  almost 
wholly  in  the  West  and  South,  partly  caused  and 
was  partly  caused  by  another  symptomatic  move- 
ment— the  active  "  town-lot  "  speculation  in  the 
newly  developed  regions  West  and  South.  During 
September  and  October,  1887,  interior  speculation 
reached  to  such  a  height  as  actually  to  embarrass 
Eastern  money  markets  by  the  heavy  drain  of  capi 
tal  to  the  centres  of  excitement.  During  1887  and 
1888,  upwards  of  forty-nine  million  acres  out  of  the 
public  lands  were  sold  to  settlers,  an  annual  increase 
of  nearly  five  million  acres  over  the  years  immedi- 
ately preceding.*  Not  unconnected  with  this  new 
extension  of  the  improved  interior  domain,  annual 
immigration,  which  in  1886  had  fallen  to  334,203, 
increased  again  by  1888  to  546,889. 

It  cannot  readily  be  doubted,  then,  if  the  usual 
tests  are  to  be  trusted,  that  these  were  years  of  pros- 
perity.    There   were,    on   the  other  hand,   several 

'  Annual  Reports,  American  Iron  and  Steel  Association. 

•  Poor's  Manual  of  Railroads. 

•  Returns  of  tht  General  Land  Office,  1888. 


Ii6  American  Finance  [I888 

qualifying  features  in  the  period  which  must  be 
noticed  before  its  character  can  be  fully  summed  up. 
Labor  troubles  were  intermittent,  and  in  very  for- 
midable shape.  These  years  witnessed  the  establish- 
ment and  spread  of  those  remarkable  organizations 
which  for  half  a  dozen  years  held  at  bay  the  corpora- 
tions which  employed  them.  In  the  spring  of  1886, 
the  Knights  of  Labor  strike  was  declared  on  the 
Missouri  Pacific  Railway,  the  switchmen's  strike  at 
Chicago  and  Milwaukee,  and  the  strike  of  street-car 
employees  in  New  York  City.  All  of  these  demon- 
strations failed.  They  were  followed,  during  May, 
by  the  memorable  anarchist  riot  at  Chicago,  brought 
about  by  a  concerted  effort  to  demand  an  "  eight- 
hour  day "  for  laborers  throughout  the  country. 
Checked  for  some  months  as  a  result  of  the  Chicago 
episode,  trouble  began  again  in  1888.  The  Phila- 
delphia and  Reading  miners'  strike  of  January,  and 
the  strike  of  the  Chicago,  Burlington,  and  Quincy's 
locomotive  engineers  in  March,  involving  2500  of 
the  railway's  employees,  were  movements  of  even 
larger  scope  than  their  predecessors,  and  they  cer- 
tainly reflected  industrial  discontent. 

For  a  time,  signs  of  equally  angry  discontent  came 
from  the  farming  districts.  The  American  wheat 
crop  of  1885  was  the  smallest  since  1881,  and,  unlike 
the  deficient  crop  four  years  before,  it  came  at  a 
time  when  supplies  left  over  from  the  crop  of  the 
preceding  year  were  double  the  average,'  and  when 
Europe's  wheat  yield  as  a  whole  nearly  equalled* 

'  Bradstreet's  tables  of  U.  S.  Visible  Supply,  June,  1885. 
•  Liverpool  Com-  Trade  Year-Book, 


18881  The  Trust  Question  117 

that  of  1884.  The  result  in  1885  was  that  the 
American  wheat-producer  had  to  face,  for  the  first 
time  in  a  generation,  the  double  misfortune  of  a 
short  crop  and  low  prices.  When  farmers  are  dis- 
contented, currency  agitation  is  certain  to  begin, 
and  so  it  turned  out  on  this  occasion.  In  April, 
1886,  a  free-coinage  bill  came  to  a  vote  in  the  House 
of  Representatives  after  warm  debate,  and  was  de- 
feated by  a  majority  of  only  thirty-seven  votes. 
Better  harvests  in  the  two  following  years,  with  de- 
crease in  competitive  foreign  production,  somewhat 
relieved  the  pressure  from  this  particular  source, 
and  as  a  consequence  the  currency  agitation  waned ; 
but  the  dissatisfied  laborer  in  the  East  continued 
much  longer  a  conspicuous  factor  in  politics.  It 
was  in  November,  1886,  that  Henry  George,  run- 
ning for  Mayor  of  New  York  City  on  a  platform  of 
discontented  labor,  polled  68, 1 10  votes  out  of  a  total 
of  219,679.  Hardly  less  significant  was  the  fact  that 
the  third  party  in  the  Presidential  campaign  of  1888 
abandoned  most  of  its  traditional  watchwords,  styled 
itself  the  "  Union  Labor  party,"  and  in  its  platform 
made  the  question  of  strikes  and  arbitration  the 
central  plank. 

These  combinations  of  laborers  were  not  the  only 
reflection  of  a  considerably  altered  situation.  A 
very  singular  parallel,  at  the  opposite  end  of  the  in- 
dustrial scale,  was  provided  by  combinations  of 
corporations.  This  phenomenon  came  to  public 
view  with  even  greater  suddenness.  Political  plat- 
forms may  be  counted  on,  ordinarily,  to  notice  cur- 
rent events  susceptible  of  use  as  "  issues."     But  in 


Ii8  American  Pinance  [i889 

1884,  the  so-called  "  trust  question  "  was  not  once 
named  in  any  Presidential  platform.  The  State 
conventions  of  1886  made  no  reference  to  it;  only 
one  or  two  platforms  of  minority  organizations  men- 
tioned the  movement,  even  in  1887.  In  1888,  on 
the  other  hand,  denunciation  of  the  trusts  was  made 
a  separate  and  conspicuous  plank  in  the  platform  of 
every  political  party  submitting  nominations.  As  a 
matter  of  fact,  the  majority  of  the  sugar  refineries  in 
the  United  States,  and  a  large  part  of  its  lead,  rope, 
oil,  and  spirits  manufactories,  had  before  1889  been 
combined  into  associations  under  single  manage- 
ments. The  magnitude  of  these  undertakings  may 
be  judged  from  the  fact  that  in  1890,  four  trusts, 
organized  within  three  years,  reported  aggregate 
capital  stock  of  $i88,(X)0,ooo.  This  enormous  capi- 
tal was  used  not  only  to  extend  the  actual  plant  and 
trade  of  the  allied  manufacturers,  but  at  times  to 
buy  off  aggressive  competitors  simply  for  the  pur- 
pose of  shutting  down  competing  mills. 

The  limits  of  this  book  will  not  permit  me  to  go 
at  any  length  into  this  question  of  the  trusts.  It 
may,  however,  be  noticed  that  in  one  respect  the 
movement  was  an  instructive  symptom  of  the  period. 
The  trusts  were  organized  to  restrict  a  competition 
which  their  organizers  declared  to  be  ruinous  if  left 
unchecked.  That  there  was  some  basis  for  this 
allegation  may  be  judged  from  the  course  of  many 
other  markets,  which  pretty  uniformly  told  a  story 
of  keen,  close,  and  sometimes  destructive  competi- 
tion. The  over-capitalized  and  in  some  quarters 
unwisely  projected  railway   systems   naturally   felt 


1889]        Europe's  Sales  of  Merchandise         119 

the  full  force  of  this  movement.  A  series  of  "  rate 
wars"  so  far  cut  down  profits  that,  although,  with 
the  heavy  annual  increase  in  the  mileage,  total  gross 
earnings  rose  with  great  rapidity  after  1887,  net 
earnings  and  dividends  actually  decreased.*  With 
the  opening  of  1889,  was  introduced  that  extraor- 
dinary plan  known  as  a  "  gentlemen's  agreement," 
whereby  the  presidents  of  the  important  railway 
systems,  not  at  all  with  a  sense  of  humor,  met  and 
pledged  their  personal  word  of  honor  to  see  that 
rates  were  conscientiously  maintained.*  Undoubt- 
edly as  a  consequence  of  the  same  ruling  conditions, 
the  record  of  commercial  failures,  which  stood  in 
1886  at  9834  individual  suspensions,  with  total  lia- 
bilities of  $114,644,119,  rose  by  1889  to  10,882,  with 
liabilities  of  $148,784,357.* 

With  home  competition  thus  aggressive,  the  enor- 
mous merchandise  import  movement  becomes  a 
matter  of  curious  historical  interest.  It  might  have 
been  supposed  that  home  competition  would  have 
shut  out  these  imports.  But  the  period  which  we  are 
noticing  was  as  peculiar  in  Europe  as  in  the  United 
States.  Production  by  foreign  manufacturers,  during 
this  period,  reached  a  volume  quite  unprecedented ; 
in  Great  Britain  especially,  the  search  for  outside  mar- 
kets was  urgent  and  aggressive.  Merchandise  exports 
from  that  country  reached  in  1890  by  far  the  highest 
total  in  its  history,  having  increased,  since  1886, 
some  $287,ooo,<xx),  or  very  nearly  twenty-five  per 

'  Poor's  Manual  of  Railroads. 

'  January  lo,  1889. 

•  Dun's  Review,  Annual  Tablec. 


I20  American  Finance  [i889 

cent.'  In  England,  this  was  not  a  symptom  of  dis- 
tress, although  competition  was  aggressive ;  for  1889 
was  declared  by  English  commercial  authorities  to 
be  a  year  when  labor  was  abundantly  employed,  and 
when  trade  compared  very  favorably,  even  in  the 
matter  of  profits,  with  previous  years.'  But  the  un- 
precedented stimulation  of  production  drove  manu- 
facturers to  an  urgent  quest  after  new  fields  of 
export  trade.  In  return  for  these  heavy  foreign 
sales  of  the  English  surplus  product,  securities  issued 
by  the  countries  to  which  the  goods  were  sold  were 
taken  by  English  capital  in  enormous  quantities.* 

The  investment  phase  of  this  operation  led  to 
some  extraordinary  phenomena  in  London  during 
1890,  and  had  much  to  do  with  our  own  investment 
markets  during  that  and  the  three  ensuring  years. 
For  although  there  was  not  a  nation  in  the  commer- 
cial world  to  which  Great  Britain's  exports,  during 
the  four  years  ending  with  1889,  had  not  been  heavily 
increased,  its  exports  to  no  other  nation  increased  as 
did  its  shipments  to  the  United  States.*  The  con- 
suming power  of  this  country  had  grown  enormously 
with  the  extension  of  its  wealth  and  population.  I 
have  already  noticed  the  increase  of  one  hundred  per 
cent,  in  annual  use  of  iron;  in  1889,  consumption  of 
cotton  was  reckoned  larger  by  2,600,000  bales  than 
in  any  previous  year  of  the  nation's  history,*  and 
these  markets  were  typical.     Nor  were  the  increased 

^Annual  Trade  Statement  of  the  United  Kingdom,  1891. 

*  London  Economist,  Commercial  Review  of  1889.  ^  Ibid, 

*  Annual  Trade  Statement  of  the  United  Kingdom,  1891. 

*  New  York  Financial  ChronicU,  September  14,  1889. 


1888]        Foreign  Competition  in  Grain         121 

importations  limited  to  any  particular  branch  of 
foreign  products.  They  embraced  necessities  and 
luxuries,  finished  manufactures  and  raw  material  of 
manufacture.  In  the  four  years  prior  to  1890,  an- 
nual imports  of  iron  increased  $4,000,000  and  im- 
ports of  precious  stones  $4,000,000.  There  was  a 
gain  of  $17,000,000  in  foreign  cordage-ware  received, 
and  of  $10,000,000  in  foreign  silks.  Along  with  a 
$15,000,000  increase  in  annual  importations  of  wool- 
len goods  came  increase  of  $9,000,000  in  tobacco 
imports,  nearly  $2,000,000  in  import  of  foreign 
wines,  and  no  less  than  $1,800,000  in  so  small  an 
item  as  foreign-made  gloves. 

These  growing  imports  were  doubtless  evidence  of 
increasing  wealth.  But  nations  as  well  as  individu- 
als will  sometimes  buy  in  excess  of  their  means  of 
ready  payment ;  this  being  usually  true  of  a  specu- 
lative period,  when  hopes  are  high  and  money- 
lenders ready  to  make  loans  on  easy  terms  and  on  all 
sorts  of  security.  It  is  conspicuously  true  of  such  a 
period  as  that  which  we  are  reviewing,  when  foreign 
merchandise  is  taken  and  consumed  in  exchange  for 
mere  evidences  of  debt.  Imports  were  equally 
heavy  in  the  trade  revival  after  1879,  but  they  were 
then  for  the  most  part  Europe's  method  of  settling 
its  debt  for  our  enormous  grain  exports.  In  none 
of  the  five  years  following  1885,  on  the  contrary, 
did  the  annual  breadstuffs-exports  of  the  United 
States  come  within  one  hundred  million  dollars  of 
the  trade  of  1880.'  Out  of  the  498,000,000  bushels 
American  wheat  crop  of  1880,  186,000,000  bushels 

'  U.  S,  Bureau  of  Statistics,  Annual  Report.  1893,  p.  3. 


122  American  Finance  [I888 

were  exported;  out  of  the  491,000,000  bushels  crop 
of  1889,  foreign  consumers  took  only  109,000,000. 
There  had,  in  fact,  been  another  immense  expansion 
in  the  grain-fields  of  foreign  competitors.  Not  only 
did  Europe  enjoy  fair  harvests  on  an  extraordinary 
acreage,  but  India  and  the  Argentine  Republic, 
which  had  hardly  been  noticed  in  the  grain  export 
markets  of  ten  years  before,  were  now  in  1888  ex- 
porting fifty  million  bushels  of  wheat  per  annum. 

This  was  an  immediate  fruit  of  the  British  capi- 
tal invested  in  the  railways  of  those  countries. 
The  net  result  of  this  foreign  competition  was 
that  the  total  outward  trade  of  the  United  States 
decreased  or  held  stationary  at  the  moment  when 
imports  were  increasing  at  the  rate  of  twenty  to 
forty  millions  annually.  In  1888,  for  the  first 
time  since  the  specie-resumption  law  was  passed, 
imports  of  merchandise  exceeded  exports ;  in  1 889, 
the  same  phenomenon  was  repeated.  Like  other 
customers  of  England  at  the  time,  we  settled  our 
adverse  balance  by  selHng  our  own  securities;  but 
the  sequel  to  this  operation,  with  trade  relations 
what  they  were,  was  in  the  main  disastrous.  For, 
let  it  be  observed,  although  these  heavy  foreign  pur- 
chases of  American  stocks  and  bonds  contributed 
immense  amounts  of  capital  to  our  markets,  the 
capital  thus  acquired  was  almost  wholly  based  on 
debt.  If  these  foreign  investors  were  for  any  reason 
to  take  alarm  over  the  outlook  in  this  country,  with- 
drawal of  such  capital,  through  sale  of  the  railway 
securities  on  our  markets,  was  an  immediate  possi- 
bility.    Even  a  shock  to  confidence  and  credit  in 


1888]        Rapid  hicrease  in  the  Surplus         1 23 

the  home  of  this  invested  European  capital  would 
be  reasonably  sure  to  cause  its  abrupt  withdrawal. 
This  had  happened  once  before,  in  the  London  panic 
of  1866,  with  consequent  serious  embarrassment  to 
the  United  States.  But  the  foreign  capital  invested 
here  in  1866  was  a  trifle  compared  with  the  amount 
poured  into  American  enterprises  between  1886  and 
1890. 

This  was,  however,  a  problem  of  the  future;  ex- 
isting conditions  served  very  notably  to  strengthen 
the  Treasury's  position.  Acting  directly,  the  heavy 
home  consumption  added  to  the  internal  revenue; 
indirectly,  it  caused  the  increase  in  the  customs. 
There  seemed  to  be  no  check  to  the  rise  in  reve- 
nue. In  1887,  as  I  have  already  noticed,  the  pub- 
lic debt  redeemable  at  par  was  extinguished,  and 
the  Government  was  forced  to  ask  authority  from 
Congress  to  enter  the  open  market  as  a  buyer  of  its 
own  unmatured  bonds  at  a  premium.  This,  as  the 
Secretary  of  the  Treasury  declared  to  Congress,  was 
"  a  responsibility  which  ought  not  to  be  put  upon 
any  officer  of  the  Government."*  But  there  was 
absolutely  no  alternative.  The  few  months  during 
which  the  Treasury,  while  awaiting  some  authorita- 
tive action  on  the  part  of  Congress,  suspended  bond 
redemptions,  sent  up  the  surplus  money  holdings  of 
the  Government  nearly  thirty  millions.  In  August, 
1888,  it  was  literally  true  that  the  Treasury's  cash 
surplus,  wholly  removed  from  the  use  of  trade,  was 
one  fourth  as  large  as  the  entire  estimated  sum  in 
the  country's  outside  circulation. 

'  Secretary  Fairchild,  Annual  Trttu.  Ref.,  1887,  p.  zzviii. 


1 24  American  Finance  [I888 

It  would  have  been  larger  even  than  this  but  for 
the  use  made,  under  pressure  of  necessity,  of  the 
depository  banks.  At  the  close  of  1885,  $12,901,. 
432  of  the  Government's  funds  were  thus  deposited. 
On  the  last  day  of  March,  1888,  these  deposits  had 
increased  to  $61,231,647,  and  they  had  risen  nearly 
twenty  millions  within  four  months.  Now  it  is  true 
enough  that  this  method  of  putting  a  public  surplus 
on  deposit  with  the  banks,  where  it  may  still  con- 
tinue to  serve  the  purposes  of  trade,  is  legitimate, 
and  in  ordinary  cases  beneficial.  No  other  tempo- 
rary disposition  of  an  excess  revenue  is  ever  thought 
of,  for  example,  by  the  British  Exchequer,  whose 
funds  go,  as  a  matter  of  ordinary  course,  into  the 
Bank  of  England.  It  is  true,  also,  that  these  bank 
deposits  of  United  States  Government  funds  were 
abundantly  secured,  under  the  law,  by  pledge 
with  the  Treasury  of  Government  bonds  to  a  face 
value  ten  per  cent,  greater  than  the  money  thus 
entrusted.  * 

A  careful  effort  was  moreover  made  to  distribute 
such  deposits  equitably;  in  1888,  they  were  shared 
by  no  less  than  two  hundred  and  ninety  separate 
institutions.*  Nevertheless,  this  recourse  was  as  un- 
popular with  the  community  at  large  as  it  was  in 
1878,  and  it  was,  moreover,  even  more  limited  in 
scope  and  permanency.  The  Government's  deposits 
were  liable  to  immediate  recall,  and  they  were  looked 
upon  as  temporary  in  any  case.  Yet  to  qualify  for 
such  deposits,  a  bank  was  obliged  to  obtain  Govern- 

^Annual  Trtas.  Ref.,  1888,  p.  453. 
*IHd.,  p.  19. 


18881         Enormous  Bond  Redemptions  125 

ment  bonds  at  prices  forced  to  a  maximum  by  the 
Treasury's  own  purchases.'  From  any  point  of 
view,  therefore,  the  bank  deposits  were  inexpedient. 
There  was  one  very  obvious  recourse — reduction  in 
the  revenue, — and  this  the  Administration  urged 
on  Congress.  But  Congress  refused  to  act.  The 
House  of  Representatives  contained  an  Administra- 
tion majority,  and  it  had  already,  in  1887,  passed 
the  Tariff-Reduction  Bill  of  Mr.  Mills.  But  the  Re- 
publicans then  controlled  the  Senate,  and  all  such 
legislation  was  accordingly  blocked.  As  a  last  re- 
sort, therefore,  in  April,  1888,  formal  authority  was 
wrung  from  Congress  to  devote  the  surplus  to  bond 
redemptions  at  a  premium. 

A  very  extraordinary  chapter  in  American  finance 
now  opened.  During  1888,  the  Government  four 
per  cents,  ranged  on  the  open  market  from  123  to 
129';  yet  at  these  high  prices  the  Treasury  bought, 
within  seven  months,  upwards  of  $50,cxx),ooo.*  The 
4^5,  ruling,  because  of  their  near  maturity,  between 
106  and  109,  were  redeemed,  meantime,  in  the 
amount  of  $33,000,000.  During  1888  and  the  two 
ensuing  years,  $45,000,000  was  actually  paid  out  in 
premiums;  within  four  years,  the  enormous  sum  of 
$235,000,000  was  expended  for  bond  redemptions 
in  excess  of  the  annual  sinking-fund  requirement.* 

To  the  world  at  large,  this  spectacle  of  public  debt 
redemption,  to  the  extent  of  nearly  half  a  billion 

*  Annual  Treas.  Hep.,  1887,  p.  xxviii ;  1888,  p.  453. 

*  Annual  Treas.  Rep.,  1888,  p.  457. 
»/(JtV.,p.  455. 

^Trtas.  Ref,,  1887,  pp.  58,  60;  1891,  pp.  98,  loa 


126  American  Finance 


[1889 


dollars  in  five  years,  was  sufficiently  astonishing. 
But  admiration  was  at  least  tempered  by  contempt 
for  the  wild  extravagance  of  the  policy.  That  any 
such  methods  should  continue  long  was  inconceiv- 
able. If  the  people  did  not  put  a  stop  to  them,  out- 
side conditions  would  themselves  have  forced  the 
issue.  By  the  middle  of  1890,  the  total  interest- 
bearing  debt  of  the  United  States  was  reduced  to 
$725, 000, (XO.  A  few  years  more  of  wholesale 
redemptions,  under  the  methods  employed  in  1888, 
and  the  entire  debt  would  be  extinguished.  This 
result,  except  for  the  waste  of  public  funds  involved 
in  the  constantly  advancing  premium,  would  of  itself 
have  been  no  misfortune.  But  these  very  redemp- 
tions were  extinguishing  the  bank-note  currency, 
thus  actually  contracting  circulation.  After  the 
debt's  extinction,  moreover,  and  the  removal  thus 
of  the  single  outlet  for  excessive  surplus  revenues, 
what  was  to  be  the  outlook  ?  Apparently,  this 
Treasury  octopus  would  absorb  the  entire  domes- 
tic circulation.  No  such  situation  has  ever  been 
presented,  before  or  since,  in  the  history  of  nations. 
It  need  hardly  be  a  matter  for  surprise  that  the 
outside  business  community  grew  more  and  more 
uneasy.  An  excessive  circulating  medium  is  an 
undoubted  evil;  but  a  law  which  draws  into  the 
public  vaults,  and  keeps  in  idleness,  seven  per  cent. 
of  the  circulation  every  year  is  a  source  of  possible 
mischief  whose  evil  influence  can  scarcely  be  ex- 
aggerated. That  something  must  be  done  to  stop 
it,  and  must  be  done  quickly,  was  agreed  by  all 
parties.     Such  was  the  situation  at  the  close  of  1889. 


CHAPTER  VI 

THE  TWO  LAWS  OF  I89O 

UNUSUAL  as  the  problem  of  excessive  public 
revenue  was  in  the  experience  of  modern  gov- 
ernments, it  was  not  wholly  new  to  the  United 
States.  Almost  exactly  half  a  century  before,  a 
similar  dilemma  had  arisen  whose  results,  had  they 
been  kept  in  mind,  might  have  given  some  useful 
warnings  to  the  financiers  of  the  later  period.  Be- 
tween 1834  and  1836,  the  annual  Federal  revenue 
was  doubled.  In  the  first  of  those  two  years,  as  in 
the  several  years  preceding  them,  there  was  a  hand- 
some Treasury  surplus,  which  was  applied  to  reduc- 
tion of  the  public  debt.  Before  1836,  however,  this 
debt  was  wholly  extinguished,  and  a  sudden  increase 
in  the  revenue  left  a  surplus  for  the  year  of  not  quite 
twenty  million  dollars — something  unprecedented 
in  those  days.  This  rise  in  public  income  resulted 
from  an  abnormally  rapid  growth  of  customs  revenue 
and  a  great  expansion  of  receipts  from  sales  of  public 
lands ;  both  of  these  movements  being  stimulated, 
in  1836  as  in  1888,  by  a  season  of  interior  develop- 
ment   and    speculation.     The    customs    schedules 

"7 


1 28  American  Finance  [I888 

might  have  been  conservatively  revised,  but  Con- 
gress refused  to  touch  them.  Instead,  it  voted  to 
distribute  $37,000,000  to  the  States,  and  then  pro- 
ceeded to  increase  public  expenditure.  The  next 
year  happened  to  be  a  season  of  trade  disaster;  cus- 
toms receipts  in  1837,  and  with  them  the  total 
revenue,  decreased  one  half  from  1836,  while  ex- 
penses were  enlarged  by  twenty  per  cent.  The 
result  was  prompt  and  logical.  The  surplus  revenue 
of  twenty  millions  in  1836  was  changed  only  one 
year  afterward  to  a  deficit  of  thirteen  millions,  the 
"  deposits  "  with  the  States  had  to  be  suspended, 
and  before  the  close  of  1837  the  Government  was 
issuing  bonds  to  ward  off  actual  insolvency. 

Whether  the  experience  of  1837  was  or  was  not  a 
precedent  worth  regarding,  there  is  no  evidence  that 
it  was  studied  by  the  statesmen  of  1888  and  1890. 
The  question  of  the  surplus  did,  however,  become 
the  focus  of  a  vast  deal  of  more  or  less  intelligent 
popular  controversy.  This  was  a  natural  result  of 
the  fact  that  the  perplexities  of  1888  reached  their 
acutest  point  on  the  eve  of  a  Presidential  contest. 
Both  political  parties  made  the  Treasury's  situation 
the  text  of  their  campaign  platforms,  and  both  went 
into  the  campaign  with  a  demand  for  reduction  of 
the  surplus.  But  the  methods  of  reduction,  as  pro- 
posed by  the  two  National  Conventions,  differed 
radically.  At  St.  Louis,  June  6,  1888,  the  Demo- 
cratic party  attacked  the  sytem  of  high  import  duties, 
to  which  it  ascribed  the  excessive  revenue.  It  ac- 
cused the  Republican  party  of  endeavoring  "  to 
meet  and  exhaust  by  extravagant  appropriations 


1888]  Surplus  Reduction  Plans  129 

and  expenses  "  the  abnormal  surplus,  and  pledged 
itself  not  only  to  "  enforce  frugality  in  public  ex- 
pense," but  to  "abolish  unnecessary  taxation" 
through  reform  of  the  tariff  system. 

It  was  plain  enough,  from  this  declaration,  that 
the  electoral  contest  would  pivot,  not  on  the  main 
question  of  a  properly  adjusted  budget  of  revenue, 
but  on  the  familiar  problem  of  protection.  The 
Republicans  accepted  this  gage  of  battle  with  a  bold- 
ness and  distinctness  which  left  little  obscurity  to 
the  issue.  Conceding  the  needless  excess  in  current 
revenue,  they  proposed,  in  their  Chicago  Convention 
of  June  2 1st,  "  such  revision  of  the  tariff  laws  as  will 
tend  to  check  imports  of  such  articles  as  are  pro- 
duced by  our  own  people."  This,  of  course,  meant 
increase,  not  decrease,  in  the  custom-house  tax-rate. 
If  this  expedient  should  not  suffice,  the  party  de- 
clared for  "  the  entire  repeal  of  the  internal  taxes 
rather  than  the  surrender  of  any  part  of  our  protec 
tive  system."  No  reduction  in  public  expenditure 
was  recommended;  on  the  contrary,  the  platform 
went  on  to  say  that  "  we  demand  appropriations  for 
the  early  rebuilding  of  our  navy,  for  the  construction 
of  coast  fortifications,  .  .  .  for  the  payment  of 
just  pensions  to  our  soldiers,  for  necessary  works  of 
national  importance  in  the  improvement  of  harbors 
and  the  channels  of  internal,  coastwise,  and  foreign 
commerce,  for  the  encouragement  of  the  shipping 
interests."  The  pension  legislation  particularly,  the 
Republican  platform  concluded,  ought  to  be  "  en- 
larged and  extended." 

Now  it  is  clear  that  cither  party's  expedient. 


130  American  Finance  [I888 

greatly  as  the  two  plans  differed  in  principle  and 
method,  could  be  made  to  reduce  the  surplus.  The 
Republican  plan  of  course  offered  the  surer  means 
of  rapid  and  wholesale  reduction,  because,  while  the 
effect  of  mere  alteration  in  schedules  of  taxation  is 
more  or  less  conjectural,  the  effect  of  increased  ex- 
penditure is  certain.  However  large  a  public  revenue 
may  become,  it  can  at  least  be  spent  if  appropriations 
are  made  sufficiently  heavy.  But  it  is  hardly  neces- 
sary to  point  out  that  the  plan  of  using  up  a  surplus 
revenue  through  extraordinary  expenditure  is  haz- 
ardous. The  revenue  might  change,  as  it  had 
changed  repeatedly  in  the  history  of  our  Govern- 
ment, through  an  unexpected  accident  of  trade; 
but  a  budget  of  expenditure,  once  fixed,  will  not  be 
easily  reduced.  When,  therefore,  it  is  proposed 
simultaneously  to  cut  down  the  public  income  and 
enlarge  the  public  outlay,  the  greatest  possible  legis- 
lative sagacity  and  discretion  will  be  necessary  to 
escape  disaster.  Exactly  how  far  such  qualities 
could  be  reckoned  on,  in  reducing  the  surplus  reve- 
nue of  1888,  was  presently  to  be  tested.  For  al- 
though the  Presidential  contest  of  1888  was  close 
and  for  a  long  time  doubtful,  its  result  was  a  Re- 
publican victory.  In  the  Electoral  College  Mr. 
Harrison  received  233  votes  out  of  401,  his  majority 
of  65  being  wholly  obtained  through  the  vote  of 
New  York  State.  On  the  total  popular  vote  of  the 
United  States,  however,  Mr.  Cleveland's  plurality 
over  Mr.  Harrison  was  100,476;  which,  curiously 
enough,  was  more  than  double  the  popular  plurality 
of  any  successful  candidate  since  1872. 


1888]  Policy  of  the  Republicans  131 

There  was  no  good  reason  to  doubt  what  general 
policy  the  Republican  party  would  pursue.  It  is 
true  that  both  parties,  in  their  appeals  to  the  people 
during  the  campaign  of  1888,  had  more  or  less 
modified  their  platform  declarations  to  suit  the  pre- 
judices of  particular  sections  or  communities.  Mr. 
Cleveland's  letter  of  acceptance,  for  instance,  de- 
clared against  "  abrupt  and  radical  changes  "  where 
"  reliance  upon  present  revenue  arrangements  "  had 
become  an  element  in  commercial  plans.  This  as- 
surance was  addressed  to  the  protectionist  interests 
of  the  East.  The  Republicans  were  in  a  somewhat 
similar  quandary  as  regarded  the  well-known  anti- 
protectionist  sentiment  of  the  Northwest,  and  they 
accordingly  hinted,  during  the  crisis  of  the  canvass, 
at  changes  in  the  import  duties  in  the  interest  of 
consumers.*  This  policy  of  evasion  is  not  at  all  un- 
usual at  such  times,  but  in  1888  the  Republican  de- 
clarations in  the  West  gave  rise  to  some  mistaken 
expectations.  There  was  little  ground  for  them. 
The  national  platform  was  perfectly  distinct  in  its 
outline  of  policy.  The  letters  of  acceptance  by  the 
Republican  candidates  were  quite  as  unmistakable. 
Mr.  Harrison,  while  expressing  his  willingness  to 
"  modify  rates  "  of  import  duties,  frankly  repudiated 
the  idea  of  lower  duties,  while  Mr.  Morton,  the  Vice- 
Presidential  nominee,  went  further  still,  asking 
whether,  in  case  the  existing  tariff  needed  revision, 
it  would  not  be  "  wiser  and  more  patriotic  to  revise 
it  with  a  careful  regard  to  the  interest  of  protection 
than  with  the  purpose  of  lessening  its  protective 
features." 

'  Minnesota  Republican  Convention,  September  7,  1888. 


132  American  Finance  [i889 

The  successful  party  had,  in  short,  pretty  consist- 
ently advocated  increase  in  import  duties,  where- 
by imports  would  be  in  a  degree  excluded,  and 
it  had  promised  increase  in  expenditure.  It  did 
not  flinch  from  this  second  proposition  after  its  suc- 
cess. Mr.  Harrison's  inaugural  address  declared, 
it  is  true,  that  "  wastefulness,  profligacy,  or  favorit- 
ism in  public  expenditure  is  criminal."  But  this 
was  a  very  general  declaration.  When  he  descended 
to  particulars,  in  this  address  and  in  his  first  message 
to  Congress,  the  President  urged  appropriations  for 
river  and  harbor  work,  for  coast  defences,  for  "  a 
more  rapid  increase  in  the  number  of  serviceable 
ships,"  and  for  a  pension  to  every  veteran  of  the 
war  unable  to  earn  a  living,  whether  his  disability 
originated  in  the  service  or  not.*  Congress,  he  sug- 
gested, ought  to  adjust  the  revenue  only  after  having 
estimated  "  these  extraordinary  demands "  and 
"  having  added  them  to  our  ordinary  expenditure."  * 

Mr.  Harrison  was  undoubtedly  sincere  in  his  be- 
lief that  he  was  outlining  a  judicious  public  policy. 
But  never  in  the  history  of  this  Government  was  ad- 
vice bestowed  with  more  unfortunate  results.  An- 
nual Government  expenditure  had  already  been 
increased  some  $49,000,000  since  the  heavy  surplus 
revenue  began  in  1886,  and  half  of  this  annual  in- 
crease was  in  pensions,  outlay  for  which  was  now 
three  times  as  large  as  it  was  when  General  Garfield 
declared  the  reasonable  maximum  to  have  been 
reached.      As  for  the  river  and  harbor  expenditure, 

'  Annual  Message,  Dec.  3,  1889. 
*  Inaugural  Address,  March  4,  i88g. 


18891  Harrison* s  Recommendations  133 

Mr.  Harrison  might  profitably  have  recalled  the  ex- 
perience of  President  Arthur.  That  many  of  these 
expenditures  were  useful  and  necessary,  no  one 
doubted,  but  it  was  equally  notorious  that  every 
committee  and  every  President  for  ten  years  past 
had  been  driven  to  desperation  to  keep  back  jobbery 
and  extravagance  from  such  appropriations.  No 
President  before  Mr.  Harrison  had  dreamed  of  such 
a  thing  as  urging  river  and  harbor  expenditure  on 
Congress. 

But  it  was  hardly  necessary  to  reason  from  the 
immediate  past.  Anybody  who  has  studied  the 
tendencies  of  legislative  bodies,  American  and 
foreign,  during  the  present  generation,  must  admit 
that  President  Harrison's  advice,  on  general  princi- 
ples, was  exceedingly  dangerous.  A  national  legis- 
lature may  be  safely  left  to  itself,  if  increased 
expenditure  is  desired,  and  nowhere  is  this  principle 
more  certain  of  application  than  in  the  United 
States.  The  immense  variety  of  local  interests  re- 
presented in  Congress;  the  pressure  on  each  indi- 
vidual Congressman  to  obtain  his  district's  good-will 
by  procuring  local  expenditure  of  national  funds; 
the  virtual  impossibility  of  getting  a  share  in  such 
appropriations  without  in  turn  favoring  demands  of 
other  Congressmen — these  are  perhaps  the  most 
familiar  incidents  in  legislation.  They  are,  and 
always  have  been,  emphasized  by  two  serious  vices 
in  our  legislative  system:  the  haphazard  construc- 
tion of  appropriation  bills  by  separate  committees 
not  concerned  in  planning  for  the  revenue,'  and  the 

'  J.  G.  Cannon,  House  of  Representatives  speech,  QmgresHoHoi 
Eecord,  March  6,  1897. 


134  American  Finance  need 

unfortunate  provision  of  the  Constitution  that  the 
President  may  veto  an  appropriation  bill  only  as  a 
whole,  and  not  in  sections.'  Finally  there  was 
added,  in  1890,  the  powerful  inducement  of  the  so- 
called  "  Grand  Army  vote,"  which  was  believed  to 
have  carried  some  States  in  the  1888  election,  and 
which,  in  the  judgment  of  politicians,  could  be  con- 
trolled by  the  largess  of  the  Pension  Bureau.  All 
this  ought  to  have  been  considered  by  a  prudent 
Executive  in  his  official  advice. 

It  was  at  once  apparent  how  little  need  there 
had  been  for  any  such  stimulus  to  Congress.  The 
revenue  was  first  taken  in  hand.  The  Tariff  Bill 
introduced  on  April  16,  1890,  by  Mr.  McKinley 
for  the  House  Ways  and  Means  Committee,  in- 
creased materially  the  rates  on  all  competing  pro- 
ducts. The  average  rate  imposed  on  dutiable 
imports  in  the  year  before  the  McKinley  Act  be- 
came a  law  was  44.41  per  cent. ;  in  the  next  year  it 
was  48.71  per  cent.'  In  the  case  of  many  classes  of 
importations,  this  increase  might  foreshadow  larger 
instead  of  smaller  revenue.  There  was,  however, 
one  very  important  branch  of  customs  revenue  which 
was  stricken  off  altogether.  In  1889,  the  duty  on 
imported  sugar  produced  $55,976,228.  The  Mc- 
Kinley Law  placed  sugar  on  the  free  list,  and  in  the 
twelve  months  ending  with  June,  1892,  the  customs 
revenue  from  that  commodity  was  only  $76,987.' 

This   particular    source    of    public    income — the 

'  President  Arthur,  veto  of  River  and  Harbor  Bill,  August  i,  1882. 

*  U.  S.  Bureau  of  Statistics,  Annual  Report,  1893,  p.  Iz. 

•  U.  S.  Statistical  Abstract,  1896,  p.  16. 


1890]  The  McKinley  Tariff  Act  135 

largest,  with  one  exception,  on  the  Government's 
accounts — was  therefore  removed  completely  and 
permanently.  The  question  then  remained,  would 
the  other  articles  left  on  the  dutiable  list  yield  more 
revenue  than  before,  or  less  ?  If  they  continued  to 
be  imported  in  the  same  amount  as  previously,  they 
would,  of  course  yield  more,  and  on  this  assumption 
the  framers  of  the  Act  of  1890  estimated  the  outside 
reduction  in  the  total  annual  revenue  at  forty-two 
to  forty-three  million  dollars,'  which  was  substan- 
tially the  amount  of  reduction  recommended  by 
the  President.'  But  President  and  Congress  alike 
ignored  two  facts  which  ought  not  to  have  been 
omitted  from  the  reckoning.  The  increased  rates 
of  duty  might  turn  out  to  be  so  high  as  to  exclude 
competing  foreign  products,  which  would,  of  course, 
curtail  receipts  at  the  custom-house.  Or,  without 
such  artificial  exclusion,  the  volume  of  importations, 
which  was  abnormally  large  in  1889  and  1890,  might 
suddenly  contract  from  natural  causes.  Previous 
tariff  experiments  had  shown  the  possibility  of 
either  result,  but  the  experience  under  the  tariff 
law  of  1890  was  destined  to  be  the  most  forcible 
illustration  of  all.  As  against  the  Congressional 
estimate  of  $43,000,000  revenue  reduction,  through 
the  McKinley  Tariff  Act,  the  actual  decrease  in 
customs  receipts,  during  the  first  fiscal  year  in  which 
all  the  new  schedules  were  in  force,  was  $52,200,- 
000,  and  two  years  later,*  with  the  revenue  law  un- 

'  N.  W.  Aldrich,  Senate  speech,  September  30,  1890. 

•  Annual  Message,  December  3,  1889. 

*  Treat.  Rep.,  1892,  p.  cxx. 


136  American  Finance  [i890 

changed,  receipts  had  fallen  $45,600,000  further.* 
Instead  of  forty-three  millions  maximum  reduction, 
the  ultimate  decrease  in  annual  customs  revenue 
under  the  law  of  1890  was  close  to  one  hundred 
millions. 

The  surplus  revenue  for  the  fiscal  year  before  the 
Act  of  1890  had  been  proposed  was  $105,053,443;' 
it  will  be  readily  seen,  therefore,  that  the  cut  in 
revenue,  even  as  estimated  on  the  floor  of  Congress, 
left  no  great  margin  for  increased  expenditure.  In 
case  of  a  heavy  decrease  in  dutiable  importations,  it 
left  no  margin  whatever.  Forty-three  millions  re- 
duction from  the  revenue  of  1889  would  leave  room 
for  sixty -two  millions  increase  in  expenditure,  in 
order  to  end  the  year  without  a  deficit.  But  Con- 
gress put  no  such  limitations  on  its  drafts  upon  the 
public  purse.  Encouraged  alike  by  the  platform 
of  the  successful  party  and  by  the  advice  of  the  suc- 
cessful candidate,  the  first  session  of  Congress  under 
Mr.  Harrison's  Administration  increased  its  annual 
appropriations  $79,000,000  over  those  of  the  pre- 
ceding session.'  In  the  next  year  the  budget  of  ap- 
propriations was  increased  $35,000,000  more,  forty 
per  cent,  of  the  increase  being  for  the  account  of 
pensions.  *  Every  department  estimate  and  every 
committee  budget  kept  first  in  view  the  idea  that 
an  unlimited  fund  was  at  hand  on  which  to  draw, 
and  that  the  public  welfare  would  be  subserved  by 
drawing  liberally  on  it.  The  jubilant  pension  com- 
missioner who,    on   assuming   office    at    President 

'  Treeu.  Rep..  1894,  p.  cxxiv.  '  Treas.  Rep.,  1890,  p.  cxi. 

•  Treas,  Rep.,  1889,  p.  xxii.  *  Treas.  Rep.,  1891,  p.  cxU. 


1891]  Extravagance  in  Expenditure        137 

Harrison's  invitation,  exclaimed  "  God  help  the 
surplus!  "  had  very  distinctly  grasped  the  situation. 
The  surplus,  indeed,  was  obviously  doomed  to 
speedy  destruction.  But  it  became  evident,  before 
the  revenue  and  appropriation  laws  had  been  twelve 
months  in  operation,  that  something  more  than  the 
dissipation  of  an  accumulated  surplus  was  threat- 
ened, and  the  Treasury  officers  soon  took  fright. 
If  the  expenditure  of  the  ensuing  fiscal  year  had 
been  kept  to  the  mark  fixed  by  the  permanent  and 
annual  appropriations  of  this  spendthrift  Congress, 
there  would  have  been  an  immediate  and  heavy  an- 
nual deficit  in  revenue.  Only  by  the  most  strenuous 
exertions  was  such  a  deficit  avoided.  Fortunately 
for  the  Administration,  not  all  the  proposed  drafts 
on  the  Treasury  were  compulsory.  Some  of  the 
plans  were  hurriedly  abandoned.  The  Government 
ceased  buying  bonds,  except  for  the  annual  sinking- 
fund  requirement,  within  seven  months  after  the 
passage  of  the  revenue  law  of  1890.'  A  year  later, 
they  abandoned  any  attempt  to  meet  even  the 
statutory  requirement  of  "  the  purchase  or  payment 
of  one  per  centum  of  the  entire  debt  of  the  United 
States,  to  be  made  within  each  fiscal  year."  *  Had 
this  sufficiently  distinct  requirement  been  observed, 
public  expenses  in  the  twelve  months  ending  with 
June,  1892,  would  have  run  some  thirty-nine  millions 
beyond  the  income  of  the  year.*  The  pension  ex- 
penditures in  which  the  President  had  urged  an  in- 

'  Treas.  Rep.,  1891,  p.  xxvi. 

•  Trtas.  Rep.,  1892,  p.  xxvii.  ;  U.  S.  Revised  SUUutet,  sec.  3694. 

'  lUd.,  pp.  xxi.,  xxii.,  xxviii. 


138  American  Finance  ne90 

crease  grew  to  proportions  so  enormous  that  the 
President  himself  had  to  interfere,  and  rid  himself 
of  a  commissioner  who  had  been  too  literal  in  his 
interpretation  of  the  Executive  advice.  By  these 
and  similar  expedients,  the  emergency  was  staved 
off.  There  was  a  Treasury  deficit  in  the  fourth 
quarter  of  the  fiscal  year  1891,  the  first  quarterly 
deficit  in  many  years ;  *  it  was  repeated  in  two  of 
the  quarterly  periods  of  1 892 ; '  but  in  each  case  a 
fortunate  though  temporary  expansion  of  the  revenue 
in  other  months  helped  the  Treasury  through  the 
year.  At  last  came  a  season  when  the  trade  from 
which  the  revenue  was  drawn  contracted,  with  finan- 
cial and  political  results  as  extraordinary  as  anything 
in  our  history. 

The  revenue  and  appropriation  laws  of  1890,  then, 
had  of  themselves  marked  out  a  precarious  future 
for  the  Treasury.  But  these  laws  were  not  the 
only  or  the  most  interesting  achievements  of  the 
session.  We  have  now  to  consider  another  law  of 
1890,  of  supreme  and  far-reaching  importance — a 
law  surpassed  in  its  permanent  influence  on  the 
national  finances  only  by  the  Legal-Tender  Act  of 
1862.  I  have  noticed  that  the  national  party  plat- 
forms of  1888  were  so  exclusively  occupied  with  the 
revenue  dispute  that  they  quite  ignored  the  lately 
urgent  question  of  silver  coinage.  The  Democratic 
Convention  said  not  a  word  on  the  subject ;  the  Re- 
publicans merely  inserted  the  declaration  that  the 
party  was  "  in  favor  of  the  use  of  both  gold  and 
silver  as  money" — a  convenient  platitude,  familiar 

•  Treas.  Rep.,  1891,  p.  33.  •  Treas,  Rep,,  1893,  p.  30. 


18891  The  Silver  Purchase  Scheme  1 39 

in  the  platforms  of  both  parties,  which  offended 
nobody  and  meant  nothing,  because  it  touched  none 
of  the  questions  of  currency  standards  and  mint  re- 
strictions on  which  alone  the  bimetallic  controversy 
hinged.  The  campaign  speakers  and  the  candidates 
were  as  silent  on  the  silver  question  as  were  the  plat- 
forms. In  his  letter  of  acceptance,  Mr.  Harrison  dis- 
cussed the  revenue,  the  immigration  laws,  the  trust 
question,  and  the  problem  of  civil-service  reform, 
but  he  did  not  so  much  as  mention  the  currency. 
He  made  no  allusion  whatever  to  the  silver  contro- 
versy in  his  inaugural  address  of  March  4,1889,  al- 
though that  address  discussed  the  purposes  of  the  new 
Administration  on  numerous  points  of  public  policy. 
Clearly,  then,  there  was  no  party  issue  at  stake 
in  the  silver  question,  no  party  or  personal  pledge 
to  be  redeemed,  and  no  reason  to  anticipate  an 
early  and  radical  move  in  that  matter  by  the 
Administration.  Yet  in  the  two  or  three  weeks 
before  Congress  assembled  in  the  winter  of  1889, 
there  was  prepared  a  plan  for  revolutionizing  the 
United  States  currency,  and  to  the  exposition  of 
thi^  project  the  Secretary  of  the  Treasury  devoted 
nearly  one  third  of  his  first  annual  report,  urging 
the  plan  on  Congress  with  all  the  argument  and  per- 
suasion at  his  command,  and  ending  by  the  form- 
ulation of  a  bill  which  he  sent  to  Congress  with  a 
plea  for  early  action.'  So  radical  and  unprecedented 
was  this  proposed  legislation  that  some  time  was  re- 
quired before  Congress  or  the  people  could  under- 

*  Treas,  Xep.,  1889,  p.  Ixziv. ;  Congressional  Record,  January  28, 
1890. 


140  American  Finance  [i889 

stand  what  it  meant.  So  hurriedly  was  it  contrived 
that  the  President  himself,  in  his  Annual  Message 
submitted  after  the  publication  of  the  Treasury 
report,  frankly  declared  that  he  had  "  been  able  to 
give  only  a  hasty  examination  "  to  the  plan,  "  owing 
to  the  press  of  other  matters  and  to  the  fact  that  it 
has  been  so  recently  formulated."  What  was  this 
sudden  after-thought  of  a  Presidential  canvass,  and 
why  was  a  new  system  of  currency  forced  upon  the 
consideration  of  Congress  by  an  Administration 
elected  on  wholly  different  issues  ? 

President  Harrison  had  chosen  as  his  Secretary  of 
the  Treasury  Mr.  William  Windom  of  Minnesota, 
who  had  already  seen  some  service  both  in  Congress 
and  in  the  Cabinet.  As  Secretary  of  the  Treasury 
under  President  Garfield,  Mr.  Windom  had  brought 
to  a  satisfactory  close  the  Government  bond-refund- 
ing operations  of  Secretary  Sherman.  His  duty  in 
this  matter  was  only  to  carry  out  the  plans  of  his 
predecessor,  a  task  easily  performed  in  the  prosper- 
ous investment  markets  of  1881.  Nevertheless, 
some  of  the  glamor  of  a  great  fiscal  operation  suc- 
cessfully achieved  remained  with  Mr.  Windom,  and 
Mr.  Harrison's  choice  for  his  finance  minister  in 
1889  was  generally  commended.  The  new  Secre- 
tary, however,  was  not  a  great  financier.  He  was 
not  even  a  trained  economist,  and,  as  we  shall 
presently  see,  his  ideas  on  the  problems  of  currency 
and  circulation  were  singularly  obscure  and  confused. 
But  Mr.  Windom  was  a  skilful  politician,  and  it  was 
as  a  politician  that  he  immediately  applied  himself 
to  the  silver  question. 


1889]  Motive  of  the  Compromise  141 

The  situation,  on  the  eve  of  the  session  of  De- 
cember, 1889,  was  peculiar.  Although  the  Repub- 
licans had  won  a  majority  in  the  Electoral  College 
of  1888,  they  had  not,  as  we  have  seen,  polled  a 
popular  majority.  This  failure  had  its  natural  influ- 
ence on  the  Administration's  support  in  Congress. 
In  the  House,  its  majority  at  the  start  was  only 
eight,  and  included  in  the  slender  majority  were 
Western  Congressmen  restive  over  the  plan  for  a 
higher  tariff.  The  Senate  was  still  more  of  a 
stumbling-block.  The  Administration  apparently 
controlled  that  chamber  also  by  a  majority  of  eight ; 
but  as  an  experienced  member  of  the  party  has  re- 
marked, "  the  nine  States  west  of  the  Missouri, 
commonly  classified  as  silver  or  Western  States, 
have  eighteen  senators";  a  representation  which 
gives  the  section  "  very  decided  advantage  in  tariff 
legislation. ' ' '  How  decided  this  advantage  was  may 
be  judged  from  the  fact  that  in  1889,  seventeen  out 
of  the  forty-seven  Republicans  in  the  Senate  came 
from  these  very  States,  where  their  constituents  were 
notoriously  lukewarm  if  not  hostile  towards  a  high 
protective  tariff.  Without  the  greater  part  of  these 
seventeen  votes,  the  Administration  stood  in  a 
minority  in  the  Senate,  and  the  tariff  bill  was  the 
first  measure  on  the  programme. 

Now  it  was  pretty  well  known  that  the  united 
support  of  these  senators  could  be  obtained  in  re- 
turn for  the  passage  of  a  free-silver  coinage  bill. 
Their  support  could  be  obtained,  without  such  in- 
ducement, for  party  measures  endorsed  by  their 
*  John  Sherman,  Recollections,  ii.,  1085. 


142  American  Finance  [i889 

constituents;  but  the  high-tariff  bill  had  not  been 
thus  endorsed.  The  Administration  was  properly 
unwilling  to  concede  the  question  of  free-coinage, 
and  Mr.  Windom  undertook  to  frame  a  compromise. 
His  plan  as  framed  was  a  political  concession,  on  the 
one  hand,  to  the  agrarian  communities  who  de- 
manded larger  money  circulation  ;  on  the  other 
hand,  to  the  silver-producing  States  of  the  Rocky 
Mountains  and  the  Sierras.  The  second  of  these 
concessions  was  the  more  important.  The  primary 
purpose  of  the  bill,  as  frankly  stated  by  its  author, 
was  to  create  an  artificial  market  for  silver;  the 
question  of  increased  money  supplies  being  treated 
as  a  minor  consideration. 

In  this  regard,  the  measure  was  absolutely  unique 
in  legislation.  All  previous  silver  bills  had  con- 
templated restoration  of  the  double  standard — a 
plan  at  least  economically  intelligible — or  at  a  pinch 
they  had  decreed  compulsory  additions  to  the 
currency  supply  through  limited  coinage  of  silver 
dollars.  Mr.  Windom's  plan  proposed  that  the 
Government  should  buy  at  the  market  price  thft 
entire  annual  silver  output  of  the  world,  or  as  much 
of  the  output  as  silver-miners  chose  to  offer;  that 
it  should  store  away  this  silver  in  bulk  at  Wash- 
ington, paying  for  it,  meantime,  in  notes  of  the 
United  States.'  All  previous  debates  on  the 
subject  had  urged  remonetization,  on  the  ground 
that  prices  of  agricultural  and  other  commodities 
would  thereby  be  enhanced  ;  Mr.  Windom  con- 
cerned himself  with  no  commodity  but  iSilver. 
*  Trtas.  Rep.,  1889,  pp.  Ixxiv  and  Ixxiz. 


1889]  Secretary  Windonis  Plan  1 43 

Where  other  champions  of  the  larger  use  of  silver  in 
the  currency  had  pointed  to  the  fall  in  wheat  as  the 
calamity  which  they  were  determined  to  avert,  Mr. 
Windom  discussed  the  fall  in  the  price  of  the  metal 
itself  as  the  prime  misfortune.'  So  firmly  did  the 
Secretary's  mind  seem  to  be  fixed  on  this  phase  of 
the  question  that  he  recited  as  the  chief  advantage 
of  his  project  the  "  utilization  of  silver  "  so  that  "  a 
market  would  always  be  provided  for  the  surplus 
product."  *  This  notion  of  an  artificial  market  was 
the  only  part  of  his  Secretary's  plan  which  the  Presi- 
dent grasped  at  once.  Although  waiving  comment 
on  the  details  of  the  scheme,  Mr.  Harrison  called 
attention  to  the  fact  that  he  himself  had  "  always 
been  an  advocate  of  the  use  of  silver  in  our  cur- 
rency," because  "  we  are  large  producers  of  that 
metal,  and  should  not  discredit  it."  * 

This  was  not  the  only  novel  and  curious  feature 
of  Mr.  Windom's  plan.  The  Treasury  notes  were 
to  be  issued  "  against  deposits  of  silver  bullion  at 
the  market  price  of  silver  when  deposited";  but 
they  were  to  be  redeemable  "  on  demand,  in  such 
quantities  of  silver  bullion  as  will  equal  in  value,  at 
the  date  of  presentation,  the  number  of  dollars  ex- 
pressed on  the  face  of  the  notes  at  the  market  price 
of  silver,  or  in  gold  at  the  option  of  the  Govern- 
ment, or  in  silver  dollars  at  the  option  of  the 
holder. ' '  *    The  reader  of  this  extraordinary  para- 

*  Treas.  Rep.,  1889,  pp.  Ixii.  and  Izxiii 

*  Ibid. ,  p.  Ixxvi. 

'  Annual  Message,  Dec.  3,  1889. 

*  rrea*.  Rep.,  1889,  p.  Ixxiv. 


144  American  Finance  [i889 

graph  will  hardly  wonder  that  the  President  de- 
clined, on  short  notice,  to  express  his  judgment  of 
it.  One  inference  was,  however,  readily  to  be 
drawn  regarding  its  operation.  An  indefinite  addi- 
tion to  the  United  States  currency,  either  in  paper 
or  in  silver,  was  proposed.  The  entire  silver  prod- 
uct of  the  world  was  to  be  made  exchangeable  at 
the  Treasury  for  notes,  and  the  notes,  if  not  ex- 
pressly legal  tender,  were  at  all  events  to  be 
exchangeable  again  for  legal-tender  silver  dollars. 
Mr.  Windom  himself  predicted  that  not  less  than 
$37,o<X),cxx>  worth  of  bullion,  at  the  market  price 
then  ruling,  would  be  exchanged  each  year  for 
notes.'  Even  this  purchase  would  involve  yearly 
additions  to  the  Government  currency  larger  by  fifty 
per  cent,  than  those  of  the  Silver-Coinage  Law  ol 
1878.  If  the  annual  silver  product  of  the  world 
were  to  be  doubled,  as  had  already  happened  since 
1877,  the  issue  of  Treasury  notes  would  double  or 
quadruple  along  with  it. 

Plans  for  an  unprecedentedly  large  increase  in 
money  circulation  are  usually  based,  like  the  Legal- 
Tender  Act,  on  the  necessities  of  Government,  or, 
like  the  Silver-Coinage  Act  of  1878,  on  a  theory  that 
existing  circulation  is  deficient.  But  the  public 
revenue  in  1889  was  overflowing,  while  as  to  the 
circulation,  Mr.  Windom  himself  took  pains  to  show 
that  since  1878  the  total  increase  in  currency  sup- 
plies had  been  seventy-four  per  cent.^  against  only 
thirty -three  per  cent,  increase  in  population.*  These 
facts  did  not,  he  argued,  "  appear  to  justify  a  largely 
»  Treas  Rep.,  1889,  p.  Uxxii.  * IHd..,  1889*  p.  Ixix. 


1889]        The  Secretary  s  Economic  Ideas        145 

increased  coinage  of  silver  dollars  for  the  purpose  of 
expanding  the  currency  "  ';  indeed,  if  the  issues  of 
such  silver  currency  "  should  become  so  numerous 
as  to  endanger  the  free  circulation  of  gold,"  "  it 
would  only  be  a  question  of  time  when  the  specie 
reserve  in  the  Treasury  would  change  from  gold  to 
silver  to  such  an  extent  as  to  force  the  Secretary  to 
pay  out  silver"  for  the  public  debt.*  This  was 
orthodox  reasoning,  but  a  singular  argument  to  in- 
voke in  behalf  of  a  plan  for  indefinite  increase  of 
notes  redeemable  in  silver  dollars,  and  the  lack  o! 
any  intelligent  convictions  in  the  Secretary's  mind 
was  equally  shown  by  his  argument,  only  a  few 
pages  further  on,  that  the  plan  "  would  meet  the 
wants  of  those  who  desire  a  larger  volume  of  circu. 
lation."  '  The  report,  in  fact,  is  crowded  with  such 
strange  contradictions.  What,  for  instance,  is  to  be 
thought  of  a  financial  document  which  begins  by 
declaring  that  the  silver  dollars  already  outstanding 
can  be  maintained  at  par  only  "  so  long  as  their 
number  is  kept  within  safe  and  proper  limits,"  *  and 
ends  by  commending  its  own  plan  as  a  short  road  to 
conditions  "  where  we  can  with  safety  open  our 
mints  to  the  free  coinage  of  silver  ?  "  * 

Mr.  Windom  could  not  fail  to  notice  that  even 
with  his  curious  plan  of  redemption  of  the  notes  in 
silver  bullion,  a  fall  in  the  price  of  silver  would  in- 

'-  >  Treas.  Rep.,  1889,  p.  Ixz. 

*  Ibid.,  p.  Ixxi. 

'  Ibid. ,  p.  Ixxvi. 

*  Ibid. ,  p.  Ixvi. 

*  Ibid.,  p.  Ixxri.  V.  •■       .  ..      . 


146  American  Finance  [i889 

flict  enormous  losses  on  the  Treasury.  A  decline  of 
ten  per  cent.,  for  instance,  would  impair  to  precisely 
that  extent  the  power  of  the  deposited  silver  bullion 
to  redeem  outstanding  notes.  But  Mr.  Windom 
believed  such  a  decline  to  be  impossible.  Silver,  in 
his  opinion,  would  advance  to  its  old  coinage  parity, 
because  the  output  of  the  mines  of  the  United 
States  would  thereafter  be  held  back  from  the  ex- 
port market.*  This  sounded  reasonable,  but  it  was 
based  on  the  wholly  erroneous  presumption,  al- 
ready tested  and  disproved  since  1878,  that  the 
annual  silver  product  of  the  world  would  not  be 
vastly  increased  by  the  new  demand.  The  net 
annual  export  of  silver  from  the  United  States,  at 
the  time  of  Mr.  Windom's  calculations,  was  a  trifle 
over  twelve  million  dollars,*  or,  roughly,  thirteen 
million  ounces.  The  increase  in  the  annual  silver 
product  outside  the  United  States,  during  the  next 
four  years,  was  thirty  million  ounces.*  In  other 
words,  the  entire  silver  output  of  the  United  States 
could  have  been  spared  by  foreign  consumers,  and 
still  their  available  supplies  would  have  increased 
with  exceptional  rapidity.  This  increase  in  the 
foreign  silver  product  came,  as  we  shall  presently 
see,  in  the  face  of  a  decline  in  silver.  What  the 
production  would  have  been  with  a  steady  rise  in 
silver's  price  can  only  be  conjectured. 

Mr,  Windom's  extraordinary  plan  was  not  destined 
to  be  embodied  in  the  statutes  as  its  author  framed 

•  Treas.  Rep.,  1889,  pp.  Ixxvi.  and  Ixxvii. 

•  Ibid,,  p.  xxlxvi. 

•  U.  S,  Mint  Report,  1893,  pp.  aa  and  $7. 


1890]      Senate  Declares  for  Free  Coinage      147 

it.  From  its  unlimited  possibilities  of  currency  in- 
flation, every  prudent  statesman  shrank.  But  all  that 
conservative  Congressmen  accomplished  was  to  bind 
in  advance,  so  far  as  possible,  this  Frankenstein  which 
the  Administration  had  constructed.  The  House 
of  Representatives  began  by  limiting  the  issue  of 
notes  to  $4,500,000  monthly;  it  made  them  legal 
tender  and,  like  the  older  obligations  of  the  Govern- 
ment, "  redeemable,  on  demand,  in  coin."  Thus 
modified,  the  measure  passed  the  House  on  the  day 
of  its  first  consideration,  June  5,  1890,  by  a  majority 
of  sixteen,  the  entire  vote  in  its  favor  being  Repub- 
lican. It  went  next  to  the  Senate,  and  that  body 
promptly  showed  its  opinion  of  Mr.  Windom's  com- 
promise by  substituting  a  flat  free-silver  coinage  bill, 
which  passed  by  a  majority  of  seventeen  votes,  the 
majority  vote  including  every  Republican  senator, 
with  two  exceptions,  from  the  very  trans-Missouri 
States  which  the  Secretary  was  laboring  to  conciliate. 
The  situation  was  sufficiently  awkward,  because  the 
tariff  bill  was  laid  before  the  Senate  on  the  very  day 
when  the  Senate  returned  its  free-coinage  substitute 
measure  to  the  House.  With  calm  assurance  in  the 
strength  of  its  position,  the  Senate  turned  down  the 
tariff  bill  on  its  calendar  and  awaited  develop- 
ments. 

It  has  sometimes  been  alleged  that  the  preparation 
and  enactment  of  the  Silver-Purchase  Bill 'of  1890 
were  made  necessary,  not  by  senatorial  obstruction 
to  the  tariff  bill,  but  by  fear  that  in  default  of  a  com- 

»  John  Sherman,  letter  to  J.  H,  Walker,  July  8,  1893 ;  RetoUet* 
tims,  ii.,  1070  and  118S. 


148  American  Finance  [t896 

promise,  a  free-coinage  measure  would  be  passed. 
Such  an  inference  assumes  that  President  Harrison 
would  have  signed  a  free-silver  bill,  which  he  could 
hardly  have  done,  in  spite  of  Mr.  Sherman's  insinu- 
ation to  that  effect,  after  declaring  officially  that  the 
results  of  such  a  law  "  would  be  discreditable  to  our 
financial  management  and  disastrous  to  all  business 
interests." '  But  the  theory  also  assumes  the  exist- 
ence during  1890  of  a  free-coinage  majority  in  the 
House  of  Representatives.  If  such  a  majority  ex- 
isted, the  time  for  it  to  show  itself  was  when  the 
Senate's  free-coinage  substitute  bill  came  back  to  the 
House  for  action.  Mr.  Bland  at  once  proposed  that 
the  Senate  substitute  be  adopted  by  the  House,  and 
his  motion  was  promptly  defeated  by  a  vote  of  152 
to  135.  The  President's  declaration  and  the  vote 
of  the  House  of  Representatives  prove,  if  they  have 
any  meaning,  that  the  fear  of  a  free-coinage  bill  was 
imaginary.  Nor  need  such  a  conclusion  be  based 
only  on  general  principles ;  there  has  been  positive 
and  authoritative  testimony  to  the  same  effect. 
"  On  the  day  when  the  Sherman  Bill  passed,"  Sena- 
tor Teller  has  since  declared  from  the  floor  of  Con- 
gress, "  there  was  no  more  show  of  a  free-coinage 
bill  becoming  a  law  than  there  was  of  the  heavens 
falling. ' ' '  There  could  certainly  be  no  safer  witness 
than  this  Colorado  statesman,  the  leader  of  the  sil- 
ver Republicans  in  the  Senate  of  1890. 

But  the  jeopardy,  indeed,  into  which  the  tariff  bill 
had  fallen  through  the  deadlock  on  the  Siiver-Pur- 

'  Annual  Message,  Dec.  3,  i88g. 
*  Senate  speech,  April  29,  1896. 


1890]  The  Compromise  Silver  Bill  149 

chase  Act,  was  real,  and  an  anxious  week  for  its  pro- 
moters followed.  The  silver  bill,  as  usual  in  case  of 
a  disagreement  between  House  and  Senate,  went  to  a 
conference  committee.  When  it  emerged,  it  was  so 
altered  than  an  entire  new  set  of  financial  problems 
was  called  forth.  The  conference  bill  required  the 
Treasury  to  purchase  monthly,  not  $4, 500, OCX)  worth 
of  silver  bullion,  but  4,500,000  ounces,  or  as  much 
thereof  as  should  be  offered.  Like  the  House  bill, 
it  directed  the  Treasury  to  pay  for  this  silver  in 
legal-tender  notes.  These  notes  were  not  to  be 
redeemable  in  silver  bullion,  for  a  final  quietus  was 
now  put  on  Mr.  Windom's  fantastic  redemption 
plan.  The  Secretary  of  the  Treasury,  "  under  such 
regulations  as  he  may  prescribe,"  was  directed  to 
"  redeem  such  notes  in  gold  or  silver  coin,  at  his 
discretion."  But  as  a  limitation  to  this  discretion- 
ary power,  the  following  remarkable  clause  was 
added:  "It  being  the  established  policy  of  the 
United  States  to  maintain  the  two  metals  on  a 
parity  with  each  other  upon  the  present  legal  ratio, 
or  such  ratio  as  may  be  provided  by  law. '  * 

This  conference  measure,  with  its  famous  "  parity 
clause,"  was  chiefly  the  work  of  Mr.  Sherman,  for 
which  reason  the  law  became  subsequently  known, 
somewhat  unjustly,  as  the  "  Sherman  Act."  Those 
who  have  studied  Mr.  Sherman's  handiwork  in  legis- 
lative compromise,  notably  in  the  Resumption  Act 
of  1875,  will  recognize  something  familiar  in  this 
compromise  of  1890.  Like  the  Resumption  Law, 
it  conceded  a  thoroughly  bad  principle  in  order  to 
avoid  the  enactment  of  that  principle  in  a  still  more 


150  American  Finance  n890 

vicious  form.  Both  laws  were  extremely  obscure  in 
their  description  of  the  duties  imposed  on  the  Treas- 
ury; each  was  susceptible  of  two  diametrically  op- 
posite interpretations,  according  to  the  personal 
convictions  of  the  Secretary  who  should  administer 
it.  Neither  ventured  to  say  in  plain  English  what 
its  author  meant,  and  both  were  therefore  destined 
to  bring  on  their  future  administrators  a  storm  of 
legislative  protest  and  abuse. 

There  is,  however,  little  doubt  of  the  purpose  of 
the  Compromise  Bill  of  1890.  The  senator  who,  in 
the  ensuing  debate  on  the  measure,  described  it  as 
"  a  beckoning  hand  for  an  interpreter,"*  expressed 
fairly  the  general  bewilderment.  But  other  senators 
showed  plainly  enough  the  meaning  attached  to  the 
measure  by  the  silver  faction.  "  This  compromise," 
said  one  of  the  most  determined  silver  advocates, 
"  is  an  abandonment,  a  total  abandonment  of  the 
double  standard."'  "In  all  these  provisions," 
another  silver  senator  declared,  "  the  gold  redemp- 
tion is  asserted  and  is  made  the  essential  and  the 
unqualified  and  the  operative  and  the  valuable  con- 
dition of  the  bill. "  *  No  one,  during  the  whole  debate, 
combatted  this  interpretation.  The  Eastern  senators 
confined  themselves  to  pointing  out  that,  while  the 
time  would  probably  never  come  when  the  Treasury 
would  be  forced  to  make  its  choice  of  metals  in 
redemption,  the  "  parfty  clause"  required,  in  case 
of  such  emergency,  that  the  note-holder  should  re- 

'  John  W.  Daniel,  Senate  speech,  July  9. 

•  Francis  M.  Cockrell,  Senate  speech,  July  9. 

*  Wilkinson  Call,  Senate  speech,  July  10, 


1890]  Meaning  of  the  Parity  Clause        151 

ceive  whichever  kind  of  coin  he  desired.'  We  shall 
find  this  contemporary  evidence  highly  important  in 
the  discussion  of  a  later  episode. 

The  conference  measure  promptly  passed  both 
House  and  Senate.  It  passed  the  Senate  partly  be- 
cause senators  from  the  silver-producing  States,  con- 
vinced that  the  Treasury  purchases  would  raise  the 
price  of  silver  to  the  coinage  parity,  now  took  the 
floor  in  favor  of  it.'  But  the  true  reason  for  its 
prompt  enactment  was  the  heavy  party  pressure 
now  applied  to  recalcitrant  Republicans.  The  final 
vote  of  July  14,  1890,  is  remarkable  from  the  fact 
that  in  neither  House  of  Congress  did  a  single  Re- 
publican member  vote  against  the  bill,  or  a  single 
Democrat  in  favor  of  it. 

Thus  did  this  extraordinary  measure  pass  into 
Jaw.  It  was  presently  followed  by  the  passage  of 
the  revenue  law  for  which,  as  we  have  now  seen,  the 
silver-purchase  legislation  was  the  price.  The  situa- 
tion at  the  close  of  1890  was  remarkable  in  many 
ways.  The  Treasury's  accumulated  surplus  was 
about  to  be  wholly  dissipated.  Prospect  of  making 
both  ends  meet  in  Government  finances  was  to  be 
subjected  altogether  to  the  chances  of  outside  trade. 
In  the  face  of  these  impaired  resources,  outstanding 
demand  liabilities  of  the  Treasury  were  to  be  in- 
creased by  upwards  of  fifty  million  dollars  annually, 
and  this  forced  addition  to  the  country's  paper  cir- 
culation was  to  be  made  at  the  very  moment  when 
the  Treasury's  hoards  were  thrown  on  the  open 

*  John  R.  McPherson,  Senate  speech,  Julj  9. 

•  John  P.  Jones,  Senate  speech,  July  8, 


152  American  Finance  [ibqo 

money  market  and  when  contraction  of  bank-note 
circulation  had  ceased. 

When  Secretary  Sherman  was  defending,  in  1879 
and  1880,  his  own  plan  of  Government  legal-tender 
issues,  he  was  reminded  of  the  possibility  that  a 
heavy  revenue  deficit  might  some  time  leave  the 
Treasury  with  nothing  but  its  gold  reserve  from 
which  to  meet  expenses.  To  this  he  answered  that 
it  was  not  "  to  be  presumed  that  Congress  will  omit 
to  provide  ample  revenues."  '  He  cited  further  the 
objection  that  the  amount  of  notes  "  may  be  en- 
larged by  Congress,  and  that  this  power  is  liable  to 
abuse,"  but  his  reply  was  that  under  resumption  of 
specie  payments  "  there  is  no  temptation  for  over- 
issue." *  Fourteen  years  had  passed,  and  Congress 
now  had  suddenly  enacted  one  law  destined  to  force 
a  deficit  on  the  Treasury,  and  another  to  increase 
without  assignable  limit  the  issues  of  legal-tender 
notes.  That  Mr.  Sherman  himself  should  have 
voted  for  both  these  measures  and  constructed  one 
of  them  is  another  notable  instance  of  the  irony  of 
history. 

'  Treas.  Rep.,  1879,  p.  x.  •  Ibid.^  1880,  p  rv. 


CHAPTER  VII 

THE  EXPULSION  OF  GOLD 

SO  far  as  the  Silver-Purchase  Act  was  designed  to 
help  the  silver  market — and  this  we  have  seen 
to  be  its  almost  single  purpose — it  was  an  early  and 
complete  failure.  Mr.  Windom's  report  and  the 
subsequent  Congressional  moves  were  immediately 
reflected,  it  is  true,  by  a  violent  advance  in  silver. 
The  speculators  promptly  put  their  machinery  in 
order,  and  by  way  of  affording  every  possible  facil- 
ity to  a  speculative  craze,  the  New  York  Stock  Ex- 
change arranged  for  the  deposit  of  silver  bullion  and 
the  issue,  against  such  deposits,  of  negotiable  certifi- 
cates which  could  be  bought,  sold,  and  delivered 
on  the  Exchange  like  any  other  security.  In  1889, 
the  average  price  of  silver  in  New  York  was  93^ 
cents  per  ounce.'  By  July,  1890,  it  had  risen  to 
$1.04,  and  the  enactment  of  the  Silver-Purchase  Law 
carried  the  price  with  a  wild  rush  to  $1.21  on  Sep- 
tember 3d.  But  the  speculative  movement  ended, 
as  such  movements  usually  do,  as  soon  as  the  earlier 
and  shrewder  speculators  began  to  take  their  profits, 
and  the  reaction  was  even  more  rapid  than  the  ad- 

•  Treas.  Rep.,  1889,  p.  Ixxxvi. 
153 


1 54  Ameruan  Finance  neso 

vance  had  been.  Silver  fell  below  98  cents  an  ounce 
before  Congress  assembled  again  in  December,  1890, 
and  the  President  regretfully  confessed  the  failure 
of  the  effort  "  to  give  to  the  market  for  silver  bul- 
lion such  support  as  the  law  contemplated."  '  Mr. 
Windom's  annual  report,  issued  at  the  same  time, 
insisted  that  in  spite  of  the  failure  of  the  law  to  help 
the  silver  market,  "  its  beneficial  results  will  event- 
ually commend  it  to  general  approval, '  *  since  it  had 
already  been  "  the  means  of  providing  a  healthy 
and  much-needed  addition  to  the  circulating  medium 
of  the  United  States."*  This,  it  will  be  observed, 
was  a  somewhat  altered  theory  of  the  purpose  of  the 
law,  but  it  was  also  adopted  by  the  President,  who 
declared  that  "  the  increased  circulation  secured  by 
the  act  has  exerted  and  is  continuing  to  exert  a  most 
beneficial  influence  on  business  and  on  general 
values." 

Now  it  should  be  remarked,  first,  that  this  is 
precisely  such  an  argument  as  might  have  been 
employed  in  1872,  for  instance,  in  behalf  of  the 
increase  and  perpetuation  of  the  older  legal  tenders. 
It  is  the  familiar  inflation  argument.  But,  further- 
more, it  will  not  be  difficult  to  show  that  Mr.  Harri- 
son's view  of  cause  and  effect  in  the  trade  movement 
of  1890  was  quite  unwarranted.  The  volume  of 
American  trade  in  1890  was  doubtless  larger  than  in 
1889,*  but  profits  were  no  greater,*  and  the  average 

'Annual  Message,  Dec.  i,  1890.        *  Treas.  Sep.,  1890,  p.  xlix. 

•  New  York  Financial  Chronicle,  January  10,  1891,  p.  64. 

*  New  York  Chamber  of  Commerce,  Annual  Hef.,  1890,  pp.  81, 
89,  98. 


1890]       President  Harrison! s  Argument        155 

of  commercial  prices  not  so  high  ' — which  sufficiently 
refutes  the  argument  that  the  new  legal-tender  issues 
under  the  Act  of  1890  were  the  cause.  It  is  true 
that  the  rampant  speculation  which  broke  out  for  a 
time  in  the  American  market,  especially  in  that  for 
securities,  was  ascribed  by  many  good  authorities  to 
the  paper-money  issues.*  This  would  have  been  no 
illogical  result,  judged  by  the  precedent  of  the  infla- 
tion period.  But  even  in  this  regard,  the  influence 
of  the  Silver-Purchase  Act  could  have  been  only 
slight.  About  five  million  dollars  monthly  in  the 
new  currency  were  coming  upon  the  market.  But 
in  the  one  month  of  September,  1890,  the  circulat- 
ing medium  outside  the  Treasury  was  expanded  by 
no  less  a  sum  than  sixty-two  million  dollars ' — the 
most  rapid  increase  in  the  country's  history,  not  ex- 
cepting the  period  of  legal-tender  issues  during  the 
war.  Clearly,  this  unparalleled  expansion  did  not 
result  from  the  Silver-Purchase  Act.  Its  true  cause 
is  easy  to  discover.  The  appropriation  laws  of  the 
Fifty-First  Congress  were  then  doing  their  most 
effective  work,  and  in  that  single  month  fifty-five 
million  dollars,  or  nearly  one  fourth  of  the  Treasury's 
total  surplus,  were  emptied  into  the  money  market.* 
It  is  probable  enough  that  this  unexpected  and 
violent  enlargement  of  the  bank  reserves,  though  it 
had  slight  connection  with  the  law  to  whose  opera- 
tion Mr.  Harrison  assigned  it,  did  its  part  in  fanning 
the  flame   of  speculation.      But   the   fundamental 

'  U.  S.  Senate,  Report  of  i8ga  on  Prices  and  Wages,  voL  i.,  p.  9. 

•  London  Economist,  December  20,  1890. 

*  Tretu.  Rep.,  1891,  pp.  15  and  95.  *  Ibid.,  p.  84. 


X56  American  Finance  [i890 

reasons  for  the  summer  advances  of  1890  were  quite 
independent  of  the  American  currency  suppHes. 
There  were  two  such  reasons.  I  have  already  de- 
scribed the  feverish  eagerness  with  which  Great 
Britain  had  been  engaged,  since  1886,  in  developing 
the  resources  of  young  foreign  communities,  taking 
securities  in  payment.  This  movement  reached  its 
culmination  in  1890.  During  the  five  months  from 
February  to  August  of  that  year,  ;^  100,000,000  in 
new  securities  were  brought  out  on  the  London 
market.  "  Business,"  in  the  words  of  a  contempo- 
rary London  review,  "  was  enormous,  and  the  rise 
in    all    descriptions    of    prices    was    astonishing."  ' 

Along  with  the  powerful  reflex  influence  on  our 
markets  of  this  foreign  speculation  had  come  visible 
evidence  that  the  world's  supplies  of  grain  were 
running  into  one  of  their  intermittent  periods  of 
shortage.  In  1889,  every  important  foreign  wheat- 
producing  state,  with  two  exceptions,  yielded  a 
deficient  supply ;  the  United  States,  meantime, 
producing  the  largest  crop  since  1884.*  These  short 
foreign  supplies  of  1889,  followed  next  secison  by 
another  harvest  only  slightly  larger  for  the  entire 
producing  world,  gave  an  additional  fillip  to  the  up- 
ward rush  of  prices  in  the  early  autumn  of  1890. 

The  Administration,  then,  was  mistaken  in  as- 
cribing the  trade  movement  of  1890  to  the  Silver- 
Purchase  Act.     The  truth  was  soon  made  manifest 

'  London  Economist^  February  21,  1891 ;  Commercial  Review  of 
1890. 

•Liverpool  Corn- Trade  News,  1889  ;  Annual  Ref.,  U.S.  Depart- 
ment of  Agriculture,  1889. 


1890]  The  ^^  Baring  Panic  ^*  157 

when  the  chief  sustaining  influence  under  the  fabric 
of  speculation  was  suddenly  removed.  Into  no 
foreign  state  had  English  capital  rushed  with  such 
reckless  eagerness  as  into  the  Argentine  Republic. 
The  resources  of  that  state  were  overestimated ;  its 
climate  was  precarious  for  production,  its  currency 
depreciated,  and  its  government  untrustworthy. 
Nevertheless,  English  investors  had  taken  its  securi- 
ties in  constantly  increasing  quantities,  and  the 
powerful  London  house  of  Baring  Brothers  had 
underwritten  loan  after  loan  in  Buenos  Ayres,  even 
as  late  as  the  spring  of  1890.  In  1889  the  wheat  crop 
of  Argentina,  whose  increasing  annual  volume  had 
chiefly  inspired  this  investment  movementj  turned 
out  a  failure. 

This  industrial  disaster  was  followed,  first  by  a 
bloody  political  revolution,  and  then,  in  September, 
1889,  by  a  financial  panic  in  Buenos  Ayres.  Demand 
for  Argentine  securities  in  London  slackened  im- 
mediately, and  a  certain  timidity  over  all  foreign 
investments  became  perceptible.  This  caution 
seemed  to  disappear  in  the  final  upward  movement 
of  prices  early  in  1890 — a  curious  but  perfectly 
familiar  phenomenon  on  the  eve  of  every  specula- 
tive collapse.  But  the  reviving  speculation  failed 
to  disentangle  the  bankers  from  their  imprudent 
South  American  engagements.  Rumors  of  trouble 
began  to  circulate  in  the  autumn.  At  length,  on 
November  20th,  Baring  Brothers,  unable  either  to 
sell  or  borrow  with  their  Argentine  securities,  de- 
faulted on  ;^2 1, 000,000  home  liabilities.  Only 
through  the  united  efforts  of  the  Bank  of  England 


158  American  Finance  n890 

and  the  London  financial  institutions  generally,  who 
guaranteed  the  doubtful  Baring  assets,  did  Great 
Britain  escape  a  repetition  of  the  Overend-Gurney 
panic  of  1866.  So  serious  did  the  strain  become, 
during  one  critical  week  of  November,  1890,  that 
the  Bank  of  England  adopted  the  extreme  precau- 
tion of  borrowing  ;^4, 500,000  gold  from  the  Bank  of 
France  and  the  Imperial  Bank  of  Russia. 

This  London  episode  was  of  serious  significance 
to  the  United  States.  In  a  previous  chapter  we 
found  that  our  abnormal  import  of  European  mer- 
chandise, from  1886  to  1890,  represented  largely 
capital  invested  by  Great  Britain  in  negotiable 
American  securities.  It  followed  that  in  1890, 
when  London's  foreign  investment  bubble  had  been 
pricked,  recall  of  British  capital  thus  invested  must  en- 
sue. The  "  Baring  panic  "  was  reflected  promptly,  not 
only  by  collapse  at  Buenos  Ayres,  but  by  a  disturb- 
ance in  the  American  money  market  so  severe  as  to 
force  the  New  York  banks  to  repeat  their  emergency 
operation  of  1884  and  1873,  and  issue  $15,000,000 
Clearing-House  loan  certificates.'  At  one  time,  loan- 
ing rates  on  call  in  New  York  City  rose  as  high  as 
186  per  cent.,  and  there  were  numerous  banking 
failures.  Recovery,  however,  was  rather  unusually 
prompt,  because  the  season's  heavy  export  of  Amer- 
ican agricultural  products,  and  our  active  interior 
trade,  offset  for  the  time  the  movement  of  English 
liquidation.  In  December,  notwithstanding  the 
condition  of  Europe's  money  markets,  the  United 
States  imported  gold.  But  with  the  ending  of  the 
*  Treat,  Rep.,  1891,  p.  327, 


1890]  Money  Supply  Excessive  159 

harvest  movement  came  a  swift  and  ominous  change 
in  the  situation. 

Between  July  i,  1890,  and  January  I,  1891,  the 
money  circulating  in  the  United  States  outside  the 
Treasury  was  increased,  in  all,  one  hundred  million 
dollars.'  The  revenue  and  appropriation  laws  of 
1890  prevented  the  recall  of  any  portion  of  this  sum 
into  the  Treasury.  The  Silver-Purchase  Law  guar- 
anteed an  increase  in  the  circulation  of  something 
like  fifty  millions  annually.  Even  contraction  in 
the  bank-note  issues  had  been  suddenly  arrested; 
for,  as  early  as  April,  1 891,  the  impending  deficit  in 
revenue  had  forced  the  Treasury  to  abandon  all 
Government-bond  redemptions  at  a  premium,'  and 
with  the  abandonment  of  this  policy  the  retirement 
of  the  bank  notes  ceased.*  During  the  active  harv- 
est trade  of  1890,  employment  had  been  found  for 
these  enormous  additions  to  the  money  supply.  But 
with  the  close  of  the  year  the  harvest  trade  was 
ended ;  the  dull  interior  season  began,  and  it  is  in- 
variably such  a  season  which  tests,  as  it  did  ever)  in 
1880,  the  character  of  a  currency.  By  January, 
1 89 1 — to  quote  the  words  of  the  United  States 
Treasurer — 

"the  people  who  had  demanded  this  hundred  million  of  ready  cash 
had  made  their  use  of  it,  and  were  willing  to  part  with  it.  But  the 
Treasury,  which  had  found  the  means  of  paying  it  out,  was  not  in  a 
position  to  call  it  back.  Money  began  to  find  its  way  into  the  great 
commercial  centres,  foreign  exchange  began  to  rise,  and  gold  ban 
began  to  be  taken  from  the  Treasury  for  shipment  abroad.     .     .     . 

•  Treas.  Rep.,  1891,  p.  1$.  *  IHd.,  p.  xxvi. 

•  IHd.,  pp.  27  and  358. 


r6o  American  Finance  [tsdi 

By  the  end  of  June  the  exports  of  gold  had  reached  the  unexampled 
figures  of  $70,000,000  for  the  six  months."  ' 

Unexampled  such  an  outflow  of  gold  might  Very 
properly  be  called;  for  in  six  months  of  1891  the 
shipments  had  exceeded  the  total  gold  exports  of 
any  twelve  months  since  the  currency  inflation  of 
the  war.*  But  in  1891,  as  usually  happens  when  an 
inflated  currency  begins  its  work  of  mischief,  any 
explanation  of  the  gold  expulsion  was  received  ex- 
cept the  most  plain  and  obvious.  The  Government 
reports  explained  that  the  national  banks  of  Eng- 
land, France,  Germany,  and  Russia  had  reasons  for 
wishing  to  increase  their  gold  reserves;  that  these 
institutions  were  encouraging  gold  imports  by  pay- 
ment of  commissions;  that  American  tourists  had 
been  spending  more  gold  abroad  than  usual  because 
of  the  Paris  Exposition.*  When  these  particulai 
influences  disappeared,  and  still  the  heavy  outflow 
of  gold  continued,  it  was  further  pointed  out  that 
the  Austrian  Government,  then  laying  its  plans  for 
resumption  of  specie  payments,  had  been  making 
strenuous  exertions  to  obtain  gold  for  the  purpose.* 
Particular  stress  was  laid  on  the  fact  that  many  ex- 
port gold  consignments,  during  1891  and  1892,  went 
out  with  sterling  exchange  a  small  fraction  below 
the  usual  gold-shipping  point. 

Now  the  facts  alleged  were  all  correct ;  but  they 
did  not  in  the  least  explain  the  enormous  shipments. 

*  Treasurer-Nebeker,  Treas.  Rep..,  1891,  p.  i6. 

*  U.  S.  Bureau  of  Statistics,  Annual  Rep.,  1891,  p.  xzz. 
»  Director  of  the  Mint,  Treas.  Rep.,  1891,  p.  146. 

*  Hid.,  1892,  p.  154.  .... 


1891]  Gold  Expulsion  Begins  i6i 

The  inducements  offered  occasionally  by  the  Euro- 
pean banks  were  contrived  simply  to  draw  imported 
gold  into  their  own  reserves  rather  than  into  the 
open  specie  market;  but  they  could  not  cause  the 
import.  If  foreign  exchange  had  declined  at  New 
York,  not  a  dollar  in  American  gold  could  have 
been  obtained  by  any  European  importer.  The 
European  banks,  especially  the  Bank  of  France, 
were  making  a  similar  strenuous  effort  to  get  gold 
during  our  own  resumption  operations  of  1878  and 
1879  '  '■>  nevertheless,  as  we  saw  in  a  preceding  chap- 
ter, France  itself  was  forced  by  the  downward  move- 
ment of  American  exchange  to  send  $30,000,000 
gold  to  New  York,  and  our  total  gold  import  of  the 
resumption  year  was  eighty  millions.  The  alarming 
phenomenon  of  1891  and  1892  was  the  persistence 
of  sterling  rates  so  high  as  to  force  continuous  gold 
exports  from  the  United  States.  At  a  fixed  rate  of 
foreign  exchange,  gold  must  be  shipped  from  any 
market  in  settlement  of  foreign  liabilities.  But  the 
gold-exporters  did  not  cause  this  high  exchange. 
On  the  contrary,  a  gold-shipper  must  sell  in  New 
York  his  draft  on  London  before  he  can  obtain  the 
gold,  and  therefore  each  successive  shipment  of  the 
kind  tends  to  depress  exchange.  What  the  foreign 
importers  did  was  merely  to  avail  themselves  of  gold 
already  in  motion  from  the  United  States  * ;  and 
back  of  all  the  superficial  reasoning  of  the  day  the 

•  London  correspondence  of  the  Treasury,  Specie  Resumption,  pp. 
129,  133,  358,  365,  369. 

'  G.  Von  Mauthner,  manager  Austrian  syndicate,  Neue  Freie 
Presse,  May,  1893, 


1 62  American  Finance  [i89i 

unwelcome  conclusion  began  to  force  itself  forward 
that  the  gold  expulsion  was  an  index,  as  truly  as  the 
gold  expulsion  of  1862,  to  a  disordered  and  inflated 
currency.* 

The  obvious  danger  from  this  heavy  drain  of  gold 
was  the  possibility  of  a  "  run  "  on  the  Treasury  gold 
reserve  by  holders  of  the  redeemable  legal-tender 
notes.  The  Treasury  had  been  placed  in  the  situa- 
tion of  a  bank  of  issue  which  has  dissipated  its  re- 
sources while  increasing  largely  its  demand  liabilities. 
Nothing  is  more  certain  in  banking  than  the  fact 
that  unless  such  an  institution  has  the  power  of  con- 
tracting its  circulation,  the  first  considerable  export 
demand  for  specie  will  exhaust  its  coin  reserves. 
The  power  of  such  contraction  at  its  own  discretion 
had  been  denied  the  Treasury  by  the  Act  of  May, 
1878,  and  the  power  of  automatic  contraction  had 
been  flung  away  by  the  revenue  act  of  1890.  There 
was  no  immediate  danger  from  that  quarter,  because 
this  very  dissipation  of  the  Treasury's  surplus  had 
provided  the  banks  with  gold  to  meet  the  heavy  ex- 
port drain.  Of  the  sixty-million  outpour  from  the 
surplus  during  September,  1890,  thirty-eight  millions 
had  been  in  the  form  of  gold,  and  thirty  millions  more 
of  Treasury  gold  had  been  paid  out  on  balance  before 
the  close  of  the  ensuing  June.*  At  the  New  York 
Clearing-House,  during  this  period,  gold  had  been 
used  for  eighty  per  cent,  of  the  payments  made  by 
the  Treasury,*  and  the  aggregate  payments  were  the 
largest  in  the  history  of  the  Government.     So  long 

•  Treasurer  Nebeker,  Treat,  Xep.,  1891,  p.  13. 

•  Ibid.,  p.  84.  •  Trtas.  Xtf.,  1896,  p.  137. 


1891]  Fall  in  the  Gold  Reserve  163 

as  such  a  movement  continued,  there  was  obviously 
no  occasion  or  inducement  for  the  presentation  of 
legal-tender  notes  for  redemption. 

But  no  such  avalanche  of  specie  could  move  out 
indefinitely.  Already,  in  June,  1891,  the  gold  re- 
serve against  the  legal  tenders  had  fallen  below  the 
low  record  of  1884,  when  Hugh  McCulloch  had 
warned  Congress  of  a  possible  suspension  of  gold 
payments,  and  below  even  that  of  1885,  when 
Daniel  Manning  borrowed  gold  from  the  New  York 
banks  on  the  collateral  of  fractional  silver.  For- 
tune favored  the  Treasury,  however,  as  it  had  often 
done  before  in  the  checkered  financial  history  of  the 
United  States.  An  event  was  at  hand,  an  accident 
of  nature,  which  with  the  country's  finances  in  a 
sound  condition  would  have  opened  a  chapter  similar 
to  that  of  the  resumption  period.  We  have  seen 
that  the  short  wheat  crops  of  1889  and  1890  had 
already  drawn  heavily  on  the  world's  supplies.  In 
1 89 1,  the  stock  of  wheat  in  American  and  foreign 
storehouses  was  still  extremely  low,  and  on  top  of 
this  came  a  total  failure  of  the  South  Russian  wheat 
crop,  the  second  largest  source  of  supply  for  the 
consumers  of  Europe,  followed  in  France  by  the  most 
serious  harvest  shortage  since  1879.'  I"  ^^  ^^ce  of 
this  foreign  catastrophe,  the  United  States  produced 
in  1 891  the  largest  grain  crop  in  its  history,  up  to  that 
date.  While  Europe's  total  wheat  yield  decreased 
1 56,000,000  bushels  from  that  of  1889,'  our  own  crops 

'  Becrbohm's   London   Corn- Trade  List,   August,    1891  ;    Brad- 
street's,  August,  1891. 
*  Liverpool  Corn'Trade  News,  1891. 


164  American  Finance  n891 

increased  255,000,000,'  and  exceeded  by  fully  one 
hundred  million  bushels  the  largest  American  crop 
on  record.'  The  market  for  this  crop  was  as  broad 
and  eager  as  the  market  for  the  crop  of  twelve  years 
before ;  the  early  demand  especially  was  stimulated 
by  the  ukase  prohibiting  wheat  exports  from  Russia 
and  by  the  French  decree  removing  the  import  duty. 
Export  of  breadstuffs  from  the  United  States,  in  the 
ensuing  season,  ran  beyond  the  enormous  outward 
trade  of  either  1879  or  1880.* 

This  remarkable  freak  of  nature  changed  for  six 
months  the  whole  complexion  of  affairs.  Beginning 
with  September,  there  was  imported  from  Europe, 
within  six  months,  very  nearly  fifty  million  dollars 
worth  of  gold.*  As  in  the  autumn  of  1880,  so  in  the 
autumn  of  189 J,  part  of  this  gold  went  into  the 
Treasury  in  exchange  for  silver  and  legal-tender 
notes,  and  the  Government's  gold  reserves  advanced 
again.  But  the  movement  ended  as  suddenly  as  it 
began.  The  season's  export  of  grain  was  completed 
earlier  than  usual,  because  of  the  very  urgent  needs 
of  foreign  importers.  For  a  few  weeks  during  Sep- 
tember and  October,  freight-room  on  out-bound 
grain  ships  was  almost  unobtainable,  so  great  was 
the  pressure  of  export  supplies.  But  with  this  im- 
mediate demand  satisfied,  the  harvest  trade  con- 
tracted, and  the  Western  banks  at  once  found  their 
hands   full   of   idle   currency.      In    November  this 

'  U.  S.  Department  of  Agriculture,  Annual  Reports, 

•  Ibid. ,  corrected  by  commercial  estimates. 

.'  U.  S.  Bureau  of  Statistics,  Annual  Report  lot  1892,  p.  i, 

*  Treas.  Rep.,  1892,  p.  258. 


<89ll  The  European  Famine  Year  165 

currency  began  to  move  East  in  great  quantities ;  it 
reached  the  city  banks  at  the  time  when  a  movement 
of  reaction  was  beginning  on  all  the  markets. 

If  prices  and  trade  activity  were  dependent,  as 
the  fiat-money  advocates  contend,  on  the  volume  of 
money  circulation,  no  such  reaction  would  have  been 
reasonable;  for  at  the  close  of  1891  the  circulating 
medium  of  this  country,  outside  the  idle  Treasury 
holdings,  was  larger  by  $157,000,000  than  it  was 
when  Congress  passed  the  Silver-Purchase  Bill.' 
But  no  theory  has  been  more  repeatedly  disproved 
by  ordinary  experience.  Wheat,  for  instance,  had 
advanced  some  thirteen  cents  a  bushel  during  the 
urgent  foreign  buying  in  August,  but  it  declined 
again,  after  this  demand  subsided,  simply  because 
comrhercial  experts  discovered  that  the  Agricultural 
Department  had  underestimated  the  season's  Amer- 
ican wheat  crop  by  fully  seventy  million  bushels. 
What  concerned  the  East  equally  was  the  fall  in 
security  prices,  under  the  heavy  foreign  liquidation. 
The  recall  of  invested  capital  by  London  to  meet  its 
own  necessities  had  long  since  ceased.  But  the 
shock  of  1890  had  discouraged  new  ventures  in 
foreign  fields,  and  the  alarming  condition  of  the 
United  States  Treasury  and  currency,  which  Europe 
perceived  more  clearly  than  the  American  people 
themselves,*  had  started  a  fresh  movement  to  get 
rid  of  American  investments.  The  strong-boxes  of 
the  English  investors  of   1887  and   1888  were  one 

'  Treas.  Rep.,  1892,  p.  103. 

*  London  Economist,  December  20,  1890 ;   December  26,  1891  ; 
February  20,  and  July  9,  1892. 


1 66  American  Finance 


1189) 


after  another  unlocked;  the  true  balance  of  inter- 
national trade  swung  against  us  in  the  face  of  the 
heavy  grain  exports.  In  January,  1892,  foreign  ex- 
change advanced  sharply ;  in  the  six  first  months  of 
1892,  $41,500,000  gold  was  shipped,  and  the  ship- 
ments during  July  and  August  averaged  two  to  seven 
millions  weekly. 

To  the  Treasury,  the  situation  was  now  very 
different  from  what  it  had  been  a  year  before.  The 
autumn  imports  of  gold  in  1891  had  partly  re- 
plenished the  Government's  reserve,  but  they  did 
not  make  good  the  enormous  gold  disbursements  of 
the  previous  twelve  months.  With  the  January  in- 
terest-payments in  1892,  there  was  another  heavy 
loss  of  gold  from  the  Treasury,'  and  by  the  close  of 
May,  1892,  the  fund  had  fallen  to  $114,000,000. 

Now  the  sum  of  one  hundred  millions  gold  had  long 
been  fixed  as  the  minimum  reserve  to  be  maintained 
against  outstanding  legal  tenders.  Secretary  Sher- 
man had  argued  that  at  least  the  $95,500,000  gold 
received  through  sale  of  bonds  under  the  Resump- 
tion Act  "  must,  under  the  existing  law,  be  main- 
tained unimpaired  for  the  purpose  for  which  it  was 
created."*  This  view  was  formally  accepted  by 
subsequent  Treasury  administrations,*  but  Congress 
took  no  action  regarding  the  matter  until  1882,  when 
a  law  was  passed  suspending  the  issue  of  gold  certifi- 

•  Treas.  Rep.,  1892,  p.  18. 

•  Letter  to  the  President  of  the  Senate,  May  16,  1879, 
•Secretary  Folger,  Treas.  Rep.,  188 1,  p.  x.;  Secretary  McCuUoch, 

Treas.  Rep.,  1894,  p.  xxxi. ;  Treasurer  Jordan,  Treas.  Rep.,  1885, 
pp.  480  and  483 ;  Secretary  Foster,  Treas,  Rep.,  1892,  p.  xxix. 


1892]    The  Hundred-Million  Gold  Reserve     167 

cates — the  natural  form  in  which  the  Treasury  would 
pay  out  gold  on  balance — "  whenever  the  amount 
of  gold  coin  and  gold  bullion  in  the  Treasury  re- 
served for  the  redemption  of  United  States  notes 
falls  below  one  hundred  millions  of  dollars."'  It 
was  clearly  declared  and  understood,  in  the  progress 
of  the  debate  in  1882,  that  the  purpose  of  this  pro- 
viso was  to  ensure  a  reserve  against  the  legal  tenders 
at  least  as  large  as  the  amount  prescribed.*  All 
subsequent  Treasury  administrations  accordingly  set 
that  sum  apart  in  their  accounts ;  and  in  this  very 
year  1892,  when  the  question  was  referred  by  the 
House  of  Representatives  to  its  judiciary  committee, 
the  majority  report  of  this  committee  declared  "  that 
it  was  the  intention  of  Congress  to  fix  the  minimum 
amount  of  this  reserve  fund  at  $100,000,000  gold 
and  gold  bullion,  and  that  it  should  be  maintained 
at  that  sum.'" 

The  significance  of  this  proviso,  in  view  of  the 
situation  of  the  Treasury  and  of  the  foreign  exchange 
market  in  1892,  is  plain.  During  April  and  May, 
the  Treasury's  gold  balance  had  been  falling  at  the 
rate  of  five  to  six  million  dollars  monthly.  Three 
months  more  of  such  depletion  would  bring  the  fund 
below  the  hundred-million  mark.  Six  months  more, 
if  the  Treasury's  monthly  deficit  in  revenue  con- 
tinued, would  bring  the  gold  fund  to  a  level  where 
the  bond-issue  power  of  the  Resumption  Act  would 
be  the  only  recourse  left,  and  a  bond-issue,  with  a 

'  U.  S.  Statutes,  47th  Congress,  ist  Session,  Ch.  2go,  Sec.  I3. 
•  W.  B.  Allison,  Senate  speech,  June  22,  1882. 
»  Congressional  Hecord,  July  6,  1892. 


1 68  American  Finance  [t892 

Presidential  election  at  hand,  would  undoubtedly 
mean  the  political  ruin  of  the  Administration  and 
its  party. 

What  added  to  the  embarrassment  of  the  Treasury 
was  the  fact  that  less  and  less  of  its  revenue  was  now 
received  in  gold.  During  the  first  half  of  1890, 
ninety  per  cent,  of  the  New  York  customs  payments 
had  been  made  in  this  form  of  money.  Gold  had  in 
fact  been  used  at  that  time  in  discharge  of  nearly  all 
mutual  balances  between  Eastern  institutions.  The 
obvious  reason  for  these  gold  disbursements  by  the 
banks  to  the  Government  and  to  one  another,  prior 
to  the  Act  of  July  14,  1890,  was  that  their  legal- 
tender  holdings  had  been  rarely  much  in  excess  of 
the  retail  needs  of  customers.  It  is  easy  to  see  what 
had  now  altered  this  normal  trade  adjustment.  After 
each  succeeding  harvest  season,  a  larger  volume  of 
new  paper  currency  moved  from  the  interior  to  the 
East;  the  paper  currency  was  increasing  vastly 
more  rapidly  than  the  needs  of  trade.  In  the  sum- 
mer of  1890,  the  New  York  Associated  Banks  held 
in  their  reserves  less  than  $31,000,000  legal  tenders, 
which  was  near  the  average  of  the  season  in  preced- 
ing years.  In  1891  they  reported  fifty  millions;  in 
1892,  sixty  millions,'  and  the  bankers  had  to  recog- 
nize, in  providing  for  future  needs  of  depositors,  that 
under  the  Silver-Purchase  Law  there  was  no  limit 
to  this  increase  in  legal-tender  holdings,  whereas  the 
limit  to  the  gold  reserve  in  the  vaults  of  city  banks 
might  possibly  be  reached  in  a  single  season. 

*  New  York  weekly  bank  statements,  July  5,  1890 ;  July  3,  1891 } 
July  a,  1892. 


1892]  Decrease  in  Gold  Payments  1 69 

The  first  result  of  this  displacement  of  gold  with 
paper  money  was  the  increasing  use  of  notes  in  set- 
tlements between  the  banks.  In  the  twelve  months 
ending  with  September,  1890,  only  one  per  cent,  of 
the  New  York  Clearing-House  balances  were  paid  in 
legal  tenders;  in  1891,  the  legal-tender  percentage 
had  risen  to  thirty-five  per  cent;  in  1892,  it  was 
fifty-seven  and  a  half.*  Under  the  conditions  which 
we  have  noticed,  it  will  hardly  be  contended  that 
this  change  was  abnormal.  But  if  a  decreased  use 
of  gold  was  logical  in  payments  from  bank  to  bank, 
it  was  equally  logical  in  payments  to  the  Govern- 
ment. In  the  first  six  months  of  1890,  as  we  have 
seen,  nine  tenths  of  the  customs  revenue  at  New 
York  was  received  in  gold;  in  the  corresponding 
period  of  1892,  three  fourths  of  it  came  in  legal- 
tender  notes.* 

Exactly  the  same  embarrassment  was  arising  as 
had  developed  in  1880  and  1884,  before  the  silver 
currency  had  been  absorbed  into  circulation.  But 
in  1892,  there  was  this  important  difference;  that 
the  notes  of  1890,  redeemable  in  gold  and  avail- 
able for  all  banking  uses,  were  not  excluded  from 
settlements  at  the  New  York  Clearing-House. 
When,  therefore.  Secretary  Foster,  who  had  suc- 
ceeded to  the  Treasury  on  the  death  of  Mr.  Win- 
dom,  found  himself  confronted  on  the  one  hand 
with  a  fall  in  the  Government's  gold  reserve  to  the 
danger-point,  and  on  the  other  with  a  rapid  shrink- 

*  New  York  Clearing-House  annual  statements,  October  I,  1890, 
l8gi,  1892. 
'  Trtas.  Hep.,  1892,  p.  46. 

/ 


1 70  American  Finance  -     n892 

age  of  gold  receipts  in  revenue,  he  quickly  concluded 
that  the  Government's  own  disbursement  of  gold 
must  cease.  The  legal-tender  surplus  of  the  Treas- 
ury, it  is  true,  was  also  small ;  but  all  Government 
notes  received  on  revenue  could  promptly  be  used 
again  for  payments,  and  so  long  as  receipts  and 
expenditures  were  equal,  the  gold  fund  would  ap- 
parently be  protected.  Accordingly,  in  the  summer 
of  1 89 1  and  the  spring  of  1892,  a  steadily  decreasing 
amount  of  gold  was  paid  out  in  the  Government's 
New  York  accounts.  After  the  first  week  of  July, 
1892,  gold  payments  by  the  Treasury  into  the  Clear- 
ing-House  were  practically  abandoned.' 

The  circle  of  embarrassment  was  now  complete. 
Gold  was  virtually  hoarded,  both  by  the  banks  and 
by  the  Government.  The  first  step  in  the  deprecia- 
tion of  the  currency  had  been  made;  the  others 
followed,  some  of  them  immediately,  others  only 
after  a  lapse  of  a  year  or  more,  but  all  in  a  sequence 
marked  out  by  inexorable  economic  law.  Neither 
the  banks  nor  the  Treasury  were  to  blame.  Both  were 
victims  of  circumstances  beyond  their  own  control ; 
both  had  taken  the  only  action  reasonably  to  be  ex- 
pected under  the  circumstances.  We  shall  now, 
however,  be  able  to  understand  the  reason  for  the 
very  remarkable  and  startling  development  which 
next  arose. 

We  have  seen  that  with  the  banks  and  the  Treas- 
ury both  guarding  their  gold  reserves,  payment  of 
gold  through  the  New  York  Clearing-House  had 
practically   ceased.      Now  the    forty   million   gold 

'  Treas.  Rep.,  1892,  p.  49;  1893,  p.  41. 


18921  Action  of  Foreign  Exchange  171 

exports,  necessitated  in  the  first  six  months  of 
1892  in  settlement  of  European  debit  balances,  had 
hitherto  been  provided  through  these  Clearing- 
House  gold  payments.  A  sterling  banker  sold  his 
bill  of  exchange  on  London,  when  rates  were  at  the 
shipping  point,  to  merchandise  importers  with  for- 
eign debts  to  pay.  He  took  in  settlement  the 
checks  of  the  importers,  deposited  the  checks  at 
his  own  bank,  and  asked  for  gold  against  them. 
This  is  the  normal  modus  operandi  of  international 
exchange.  Few  banks,  even  then,  carried  an  indi- 
vidual gold  balance  large  enough  to  meet  more 
than  one  or  two  large  export  orders;  but  with 
a  normal  currency,  the  matter  was  automatically 
adjusted.  The  checks  of  the  merchandise  impor- 
ters went  through  the  Clearing-House  next  day, 
the  banks  on  which  the  checks  were  drawn  settled 
their  balances  in  gold,  and  the  resultant  credit  bal- 
ance passed  into  the  gold-exporter's  bank  in  that 
form  of  money.  The  sterling  banker  had  in  effect 
drawn  on  the  aggregate  gold  reserve  of  the  New 
York  associated  banks,  and  these  banks,  up  to  the 
middle  of  1892,  had  provided  all  gold  required  for 
export. 

But  we  have  seen  already  how  this  situation  had 
been  altered  through  the  Law  of  1890.  On  June 
30,  1892,  with  foreign  exchange  at  the  normal  ship- 
ping point,  $3,200,000  was  ordered  at  New  York  for 
export.'  The  checks  passed  duly  through  the  Clear- 
ing-House, but  the  credit  balance  thus  created  to 
the  gold-exporter's  bank  was  met  in  legal-tender 

*  U.  S.  Mint,  Annual  Hep.,  1893,  p.  43. 


172  American  Finance  [i892 

notes.  These  notes  could  not  be  used  by  the  ster- 
ling bankers  to  meet  their  drafts  on  London,  and  the 
two  or  three  deposit  banks  with  which  they  kept 
accounts  were  unable,  out  of  their  own  reserves,  to 
provide  the  necessary  gold.     What  was  to  be  done  ? 

There  were  only  two  alternatives  left  to  the  ster- 
ling bankers :  to  bid  an  open  premium  for  gold,  or  to 
present  their  legal-tender  notes  for  redemption  in 
gold  at  the  Treasury.  But  the  bid  of  a  premium  on 
gold,  under  such  circumstances,  would  have  been 
public  witness  to  depreciation  of  the  currency,  and 
it  was  expressly  to  prevent  such  depreciation  that 
the  gold  reserve  in  the  Treasury  had  been  established. 
The  entire  credit  of  the  United  States  had  been 
pledged,  in  the  words  of  the  Resumption  Act,  "  to 
enable  the  Secretary  of  the  Treasury  to  prepare  and 
provide  "  against  exactly  such  contingencies.  There 
was  no  other  object  in  the  accumulation  of  a  specified 
gold  reserve  in  the  Treasury.  Therefore  the  bank- 
ers were  not  only  not  in  duty  bound  to  bid  an  open 
market  premium  for  export  gold,  but  such  an  act 
would  have  been  a  deliberate  assault  on  the  public 
credit.  They  made  no  such  bid  in  July,  1892,  but 
carried  their  notes  to  the  Treasury  to  be  redeemed 
in  gold. 

In  the  thirteen  years  from  1879  ^^  ^^9^  inclusive, 
only  $34,ooo,cxx)  notes  had  been  thus  presented  for 
redemption,  and  the  largest  redemptions  of  any  year 
had  been  in  1879.'  I"  ^^^t,  as  we  have  seen  in  our  re- 
view of  previous  autumn  movements  of  currency, 
the  tendency  had  been,  not  to  present  notes  to  the 
'  Treas,  Ref.,  1893,  p.  13. 


18921  Legal  Tenders  Presented  1 73 

Treasury  for  gold,  but  to  offer  gold  in  exchange  for 
the  Treasury's  surplus  legal  tenders.  The  with- 
drawal of  Treasury  gold  in  quantity  through  pres- 
entation of  legal  tenders  for  redemption  was 
therefore  a  decided  and  alarming  novelty.  But 
the  reckoning  for  the  wild  performances  of  1890 
had  now  begun,  and  the  spectacle  soon  became 
familiar  enough.  From  June,  1892,  throughout  the 
whole  series  of  troubled  years  which  followed,  al- 
most every  dollar  of  gold  exported  from  the  United 
States  was  obtained  on  note  redemption  from  the 
Treasury.*  In  his  annual  report  of  1892,  the  Secre- 
tary of  the  Treasury  despondently  confessed  that  a 
heavy  deficit  in  revenue  was  impending,  and  that 
the  whole  redemption  machinery  of  the  Government 
was  in  peril.' 

Extraordinary  interest  was  lent  to  this  compli- 
cated situation  by  the  Presidential  election  of  1892. 
Ever  since  the  enactment  of  the  two  laws  of  1890, 
the  Administration  party  had  been  unfortunate  at 
the  polls.  In  November,  1890,  it  had  been  over- 
whelmed by  the  most  sweeping  political  reverse 
since  1882.  As  in  the  earlier  year,  so  in  1890,  not 
only  the  doubtful  States  but  the  Administration 
strongholds  went  over  by  heavy  majorities  to  the 
opposition.  Massachusetts  had  cast  its  vote  for  Mr. 
Harrison,  in  1888,  by  a  plurality  of  32,037;  in  1890 
it  elected  William  E.  Russell,  Democratic  candidate 
for  governor,  by  9053.  Robert  E.  Pattison  and  the 
opposition  carried  Pennsylvania  by  16,554,  against 

'  Treas.  Rep.,  p.  12  ;  1896,  pp.  130  and  131. 
'  Secretary  Foster,  Treas.  Rep.,  1892,  p.  xxix. 


1 74  American  Finance  (i892 

Mr.  Harrison's  1888  plurality  of  79,458.  Nebraska 
went  Democratic,  for  the  first  time  in  its  history; 
Illinois  and  Michigan  went  over  similarly  to  the 
opposition.  The  House  of  Representatives  chosen 
in  1888  was  Republican  by  twenty-one  plurality ;  its 
successor  contained  the  huge  Democratic  plurality 
of  149. 

The  influence  of  this  electoral  result,  so  far  as  con- 
cerned the  legislation  of  the  next  two  years,  was  of 
the  slightest.  The  Senate  was  still  Republican ;  no 
law  of  a  radical  or  partisan  character  was  therefore 
likely  to  pass  both  Houses.  Mr.  Sherman  himself 
made  a  perfunctory  move  in  the  direction  of  revoking 
the  worst  part  of  the  Silver-Purchase  Act,'  but  his 
proposal  was  not  taken  seriously.  Instead,  both 
houses  instantly  set  to  work  constructing  free- 
coinage  bills.  The  struggle  over  these  measures 
in  the  new  Democratic  House  of  Representatives 
continued  up  to  the  eve  of  the  Presidential  campaign 
of  1892.  Opponents  of  the  bill  were  so  fearful  of 
results  that  they  devoted  all  their  energies  to  pre- 
venting a  vote  on  the  measure.  Twice  the  House 
divided  equally  on  the  question  of  laying  the  bill 
upon  the  table,  party  lines  on  both  occasions  being 
absolutely  broken.  The  Senate,  meantime,  taking 
the  bit  in  its  teeth,  passed  a  free-coinage  law  on 
July  I,  1892,  by  a  majority  of  four,  both  parties 
again  disintegrating  on  the  vote.  What  the  result 
of  this  Senate  vote  would  have  been  in  the  House 
of  Representatives,  under  ordinary  circumstances, 
is  a  matter  of  conjecture.     But  the  season  was  very 

'  Recollections,  ii.,  11 89. 


1892]         Fruitless  Action  of  Congress  1 75 

late,  the  Presidential  canvass  had  begun,  and  event- 
ually the  silver  bill  was  left  to  die  through  the  ad- 
journment of  Congress. 

It  might  perhaps  have  been  supposed  that  in  view 
of  the  serious  condition  of  the  Treasury's  finances, 
at  least  an  effort  would  be  made  to  readjust  the 
revenue.  But  once  more  the  mischievous  entangle- 
ment of  the  revenue  question  with  party  prejudice 
obstructed  any  reasonable  action.  The  House,  with 
which,  under  the  Constitution,  revenue  laws  must 
originate,  passed  in  the  spring  of  1892  by  very  large 
majorities  a  series  of  bills  removing  all  import  duties 
from  wool  and  woollen  goods,  from  cotton-bagging, 
and  from  binder-twine.  This  action  was  no  doubt 
consistent  with  the  platform  of  the  House  majority, 
and  the  plan  of  dealing  with  separate  articles  in 
separate  bills  was  admirable.  But  for  all  this,  the 
House  measures  did  not  in  the  least  meet  the  real 
emergency.  If  enacted  without  supplementary 
legislation,  they  would  merely  have  made  a  bad 
matter  worse.  Whether  right  or  wrong  in  principle, 
the  duties  on  these  various  commodities  were  raising 
revenue,  and  in  1892  no  revenue  could  be  spared. 
To  cut  off  even  these  receipts  in  the  Treasury's  exist- 
ing situation,  without  substituting  some  other  source 
of  income,  would  simply  have  been  a  piece  of  folly. 

The  bills  failed  in  the  protectionist  Senate,  and 
probably  no  other  outcome  was  expected  by  their 
authors.  One  recourse  remained — a  recourse  which 
had  been  promised  repeatedly  in  party  platforms. 
It  was  possible,  while  still  leaving  revenue  un- 
changed, to  save  the  Treasury  from  actual  deficit  by 


176  American  Finance  [1892 

cutting  down  expenses.  And  in  fact  this  Fifty- 
Second  House  of  Representatives  virtuously  re- 
solved at  the  very  start,  and  by  a  vote  of  164  to  95, 
that  "  in  view  of  the  present  condition  of  the 
Treasury,  ...  no  money  ought  to  be  appro- 
priated by  Congress  except  such  as  is  manifestly 
necessary  to  carry  on  the  several  departments,  fru- 
gally, efficiently,  and  honestly  administered."  '  But 
economy  is  an  easier  watchword  in  resolutions  for 
public  edification  than  in  close  committees,  besieged 
by  greedy  Congressional  applicants.  A  few  appro- 
priation committees  made  a  resolute  effort  at  re- 
trenchment; other  committees  quite  as  resolutely 
unloosed  the  purse-strings,  and  the  Senate,  as  usual, 
loaded  down  the  bills  with  its  own  particular  objects 
of  extravagance. 

The  net  result  was  curious  and  extremely  mis- 
chievous. In  its  two  sessions,  this  Fifty-Second 
Congress  cut  down  naval  appropriations  nine  mil- 
lion dollars;  a  proper  enough  reduction,  if  made 
as  part  of  a  consistent  scheme  of  economy.  But 
against  this  saving,  it  ran  up  river  and  harbor  ap- 
propriations eight  millions,  raising  them  to  the 
largest  total  by  far  in  the  Government's  history. 
It  saved  three  millions  in  the  allowance  for  new 
fortifications,  only  to  increase  by  the  respectable 
sum  of  eighty  millions  the  pension  appropriations 
of  its  predecessors.*  In  short,  the  opprobrious 
title  of  "  billion-dollar  Congress,"  flung  at  the  first 
Congress  under  Mr.  Harrison  because  appropriations, 

•  Congressional  Record,  January  15,  1892. 

•  TV^oj.  JP^.,  X893,  p.  atvL 


18921  The  Presidential  Platform,  177 

annual  and  permanent,  ran  within  thirteen  millions 
of  that  handsome  total,  applied  with  literal  truth  to 
the  Congress  chosen  in  1890,  which  had  made  econ- 
omy its  plea  before  the  people. 

With  this  rather  complicated  record,  the  two 
parties  went  to  the  people  in  the  campaign  of  1892, 
and  the  result  was  another  sweeping  Democratic 
victory.  But  it  was  not  easy,  when  the  campaign 
throughout  the  country  was  surveyed,  to  say  ex- 
actly what  the  victory  meant.  High  protection  and 
tariff  reform  had  locked  horns  again,  and  on  these 
questions  the  verdict  of  1892  was  unequivocal.  But 
as  to  where  either  party,  and  in  particular  the  success- 
ful party,  stood  in  the  vital  matter  of  the  currency, 
no  one  could  confidently  assert.  The  Republican 
convention  at  Minneapolis  on  June  7th  had  neglected 
to  say  a  word  about  the  unlucky  Silver-Purchase  Act, 
and  in  view  of  the  incidents  already  considered  in 
this  chapter,  the  omission  was  not  surprising.  But 
the  attitude  of  the  Democratic  party,  in  its  conven- 
tion at  Chicago  two  weeks  later,  was  more  singular. 
They  "  denounced  "  the  Law  of  1890,  not  as  un- 
sound finance,  but  as  a  "  cowardly  makeshift  " — a 
phrase  which  certainly  suggested  deference  to  free- 
coinage  sentiment.  Nor  did  they  even  promise  to 
repeal  it.  Strange  as  it  may  seem,  all  that  the 
Democratic  convention  of  1892  distinctly  did  in  this 
matter  was  to  advise  the  Republicans  to  revoke  the 
law.  The  possibility  of  danger  in  this  ' '  makeshift, ' ' 
so  the  Chicago  platform  calmly  announced,  "  should 
make  all  of  its  supporters,  as  well  as  its  author, 
attxious  for  it  speedy  repeaL  " 


178  American  Finance  [1892 

This  declaration  is  a  curiosity  even  among  the 
oddities  of  American  platform  literature;  it  may 
almost  be  described  as  a  political  joke  ;  for  the 
final  votes  on  the  Silver-Purchase  Bill  in  1890 
had  disclosed  on  the  affirmative  side  not  one 
Democratic  Congressman.  But  if  this  manifesto 
was  ambiguous,  the  convention's  general  declara- 
tion on  the  coinage  was  a  master-stroke  at  Delphic 
utterance.  Every  shade  of  conflicting  economic 
and  political  opinion  had  its  turn  in  the  paragraph. 
The  party  believed  in  "  the  coinage  of  both  gold 
and  silver  without  discrimination."  Yet  it  pledged 
"  the  equal  power  of  every  dollar  at  all  times  in 
the  markets  and  in  the  payment  of  debts,"  which 
was, of  course,  entirely  incompatible  with  the  other 
declaration.  The  gold  and  silver  dollars  must, 
moreover,  "be  of  equal  intrinsic  and  exchangeable 
value,"  and  this  equality  was  to  be  attained,  either 
"  through  international  agreement,"  or  "by  such 
safeguards  of  legislation  as  shall  insure  the  mainte- 
nance of  parity  of  the  two  metals."  As  to  what 
these  legislative  safeguards  ought  to  be,  the  plat- 
form had  nothing  to  say.  The  final  declaration, 
"  that  all  paper  currency  shall  be  kept  at  par  with 
and  redeemable  in  coin,"  was  fortunately  less  am- 
biguous, and  was  useful  for  appeal  in  subsequent 
legislation.  On  the  whole,  it  was  safe  to  say  that 
the  interpretation  of  this  currency  plank  depended 
wholly  on  the  interpreter.  The  advocate  of  any 
policy  could  invoke  some  part  of  it  in  behalf  of  his 
own  purposes,  and  the  convention's  choice  of  Mr, 
Cleveland  as  its  candidate  made  conservative  inter< 
pretation  certain. 


18921       Revolt  of  the  Silver  Democrats         1 79 

The  business  communities  of  the  East,  which  gave 
Mr.  Cleveland  a  good  share  of  his  support,  were 
guided  wholly  by  their  confidence  in  the  ex-Presi- 
dent's conservatism,  by  their  objection  to  the  cur- 
rency experiments  of  the  Harrison  Administration, 
and  by  their  willingness  to  try  a  lower  tariff.  But 
the  character  of  the  canvass  in  the  West  and  South 
was  ominous.  At  least  eight  of  the  Democratic 
State  conventions  early  in  1892 — in  Colorado,  Flor- 
ida, Georgia,  Idaho,  Kansas,  Nevada,  South  Caro- 
lina, and  Texas — had  submitted  flat  and  unqualified 
demands  for  a  free-silver  coinage  law.  Others  in 
the  more  conservative  Middle  States,  among  them 
Illinois,  Iowa,  and  Michigan,  had  framed  somewhat 
more  cautious  declarations  whose  actual  purport  was 
the  same.  Three  of  them  openly  repudiated  the 
coinage  plank  of  the  national  platform.  The  South 
Carolina  Democrats,  on  May  i8th,  within  a  month 
of  the  national  convention,  entered  their  "  solemn 
protest  against  the  nomination  of  Grover  Cleve- 
land "  because  of  his  well-known  principles  on  the 
currency.  After  the  nomination  had  been  made, 
the  Colorado  Democrats,  on  September  13th,  en- 
dorsed the  national  platform  "  with  the  exception 
of  that  part  of  it  relating  to  silver  and  coinage," 
while  the  Nevada  Democrats  had  already  declared 
themselves  "  absolved  from  all  obligation  to  support 
the  nominees"  of  the  party  unless  such  nominees 
expressly  declared  themselves  for  free  coinage. 

These  three  States,  it  is  true,  were  not  fairly  typi- 
cal; for  two  of  them  were  silver-producers,  and  in 
the  third  the  Democratic  party  had  surrendered  to 
an  agrarian  movement  based  on  currency  inflation. 


i8o  American  Finance  n892 

But  the  spirit  animating  these  unusual  party  mani- 
festoes broke  out  at  intervals  throughout  the  country. 
It  focussed  in  the  so-called  People's  Party,  organized 
at  Omaha  on  July  4,  1892,  into  whose  ranks  flocked 
the  financial  and  social  agitators  of  every  sort,  and 
whose  members  first  applied  to  themselves  the  politi- 
cal term  of  Populists.  This  third  party's  platform 
described  the  maintenance  of  the  gold  standard  as 
"  a  vast  conspiracy  against  mankind,  organized  on 
two  continents,"  and  "  rapidly  taking  possession  of 
the  world. "  The  party  proposed  free  and  unlimited 
coinage  of  silver,  and  demanded  that  the  circulating 
medium  "  be  speedily  increased  to  not  less  than  fifty 
dollars  per  capita. "  Since  the  per  capita  circulation 
at  the  time,  by  the  Treasury  estimate,  was  less  than 
twenty-five  dollars,  this  was  a  distinct  demand  for 
the  doubling  of  the  Government's  money  issues.  In 
addition  to  its  currency  plank,  the  Omaha  conven- 
tion declared  for  Government  ownership  of  railroads, 
for  a  graduated  income  tax,  and  approved  the  appli- 
cation of  the  boycott  in  labor  disputes. 

Now  there  was  little  absolutely  new  in  this  Popu- 
list manifesto.  With  the  exception  of  the  boycott 
clause,  each  of  its  declarations  had  seen  service  in 
previous  third-party  platforms.  But  the  third-party 
episode  of  1892  is  a  matter  of  great  importance,  in 
view  of  the  influence  which  its  supporters  were  to 
exercise  in  the  next  Congressional  session  and  in  the 
Presidential  canvass  four  years  afterwards.  The 
movement  was  remarkable  even  in  1892.  The 
largest  popular  vote  ever  before  obtained  by  a  third- 
party  candidate  was  cast  in   1880,    when   General 


18921  Rise  of  the  Populist  Party  i8t 

Weaver  of  Iowa,  running  on  a  fiat-money  platform, 
polled  308,578  votes,  scattered  all  over  the  Union. 
In  1892,  the  same  candidate,  nominated  by  the 
Peoples  Party,  received  the  remarkable  vote  of 
1,042,631,  which  was  more  than  one  fifth  the  poll 
of  Mr.  Harrison.  Never  since  the  election  of  i860 
had  a  third  party  carried  a  single  State.  In  1892 
the  People's  Party  carried  Kansas,  Colorado,  Idaho, 
and  Nevada,  and  cast  twenty-two  votes  in  the  Elec- 
toral College.  They  sent  to  the  Fifty-third  Con- 
gress four  senators  and  eleven  representatives,  and 
in  view  of  the  known  sympathy  of  many  professing 
Democrats  with  the  principles  of  the  Populist  party, 
it  was  certain  that  their  ideas  would  get  a  hearing. 
It  will  readily  be  seen,  thereforie,  that  Mr.  Cleve- 
land's popular  plurality  of  379,000 — the  largest 
obtained  by  any  Presidential  candidate  since  1872 — 
meant  less  than  appeared  on  its  face.  Nor  did  the 
Democratic  House  plurality  of  ninety-one,  and  the 
party's  possession  of  a  majority  in  both  branches  of 
Congress,  for  the  first  time  since  Buchanan's  Ad- 
ministration, point  to  a  harmonious  Administration. 
Every  experienced  politician  knew  at  the  close  of 
1892  that  a  stormy  session  was  ahead  for  Congress. 
But  even  the  confused  political  situation  was  now 
overshadowed  by  the  approaching  catastrophe  in  the 
national  finances. 


"  ■     ■    I  ■       I     ■  ...  ., 


CHAPTER  VIII 

THE  PANIC  OF   1 893 

WE  left  the  Treasury,  in  our  last  chapter,  con- 
fronted for  the  first  time  in  its  history  with 
a  heavy  drain  on  its  gold  reserve  to  redeem  out- 
standing notes.  During  the  nine  months  after  the 
beginning  of  this  movement,  Secretary  Foster  was 
engaged  in  a  continuous  struggle  to  save  the  re- 
demption fund.  The  strain  relaxed  temporarily  in 
the  autumn  of  1892,  when  interior  trade  was  again 
very  large.  Practically  no  gold  was  imported,  but, 
on  the  other  hand,  exports  ceased  almost  entirely. 
Moreover,  upwards  of  $25,000,000  legal  tenders 
were  drawn  from  the  New  York  banks  to  the  West 
and  South,'  and  the  Treasury  obtained  some  gold 
from  these  institutions  in  exchange  for  notes  de- 
livered at  interior  points.*  But  when  the  Eastward 
flow  of  currency  began  again,  at  the  end  of  the 
harvest  season,  gold  exports  were  resumed  and  with 
them  the  presentation  of  legal  tenders  for  redemp- 

'  New  York  weekly  bank  statements,  July  30  and  November  19, 
1892. 

»  Treas  Rep.,  1892,  p.  13  ;  N.  Y.  Financial  ChronicU,  July  9  and 
July  23,  1892. 


1893]    Harrison  Administration  Goes  Out     183 

tion.  In  December,  1892,  and  January,  1893,  up- 
wards of  $25,000,000  gold  was  withdrawn  by  note- 
holders from  the  Treasury  to  provide  for  export 
needs.' 

By  the  close  of  January  the  Treasury's  gold 
reserve  had  fallen  to  a  figure  barely  eight  millions 
over  the  legal  minimum.*  With  February's  early 
withdrawals  even  larger,  Secretary  Foster  so  far 
lost  hope  of  warding  off  the  crisis  that  he  gave 
orders  to  prepare  the  engraved  plates  for  a  bond- 
issue  under  the  Resumption  Act.*  As  a  last  resort, 
however,  he  bethought  himself  of  Secretary  Man- 
ning's gold-borrowing  operation  of  1885.  In  Febru- 
ary Mr.  Foster  came  in  person  to  New  York  to  urge 
the  banks  to  give  up  gold  voluntarily  in  exchange 
for  the  Treasury's  legal-tender  surplus.* 

From  a  strict  commercial  point  of  view,  there  was 
good  reason  why  the  banks  should  not  make  any 
such  exchange.  But  the  plea  that  a  panic  must  at 
all  hazards  be  averted,  combined  with  the  argument 
of  patriotic  support  of  the  Government,  at  length 
prevailed.  The  New  York  banks  turned  over  to  the 
Treasury,  in  exchange  for  notes,  six  to  eight  million 
dollars  gold.*  This,  with  some  small  amounts  still 
paid  through  the  customs  revenue,  was  enough  to 
keep  the  Treasury  afloat  until  March  4th,  when  the 

•  Treat.  Rep.,  1893,  p.  12.  *  Ibid.,  p.  96. 

'  Letter  of  instructions  to  chief  of  U.  S.  Bureau  of  Engraving  and 
Printing,  February  20,  1893. 

♦New  York  Financial  Chronicle,  February  11  and  February  18, 
1893. 

•  New  York  Tribune,  February  9,  to,  and  1 1,  1893  ;  New  York 
Financial  Chronicle,  February  11,  1893. 


184  American  Finance  [1393 

entire  problem  could  be  turned  over  to  the  new 
Executive.  To  his  successor  in  the  Treasury,  Mr. 
Foster  left  exactly  $100,982,410  in  the  gold  reserve,' 
and  barely  $25,000,000  in  other  forms  of  money.' 

Probably  no  financial  administration  in  our  history 
has  entered  office  under  such  disheartening  condi- 
tions. The  condition  of  the  national  finances  was 
almost  as  bad  as  when  the  Buchanan  Administration 
relinquished  office.  The  Treasury  was  empty  and 
the  public  credit  shaken.  But  even  in  1861,  the  line 
of  financial  policy  to  be  pursued  in  the  emergency  was 
clearly  pointed  out,  whereas  in  1893  the  Cleveland 
Administration  found  it  impossible  to  frame  a  policy. 
It  was  indeed  open  to  the  new  Administration,  as  to 
its  predecessor,  to  issue  bonds  under  the  Law  of 
1875.  But  such  a  move,  at  such  a  time,  was  likely 
to  involve  the  political  ruin  of  the  Administration, 
and  it  would  certainly  destroy  all  possibility  of 
gaining  Congressional  consent  to  the  first  and  most 
urgent  measure  on  the  Administration's  books — 
repeal  of  the  Silver-Purchase  Law.  This  was  beyond 
doubt  the  reason  why  the  President's  inaugural  ad- 
dress, on  March  4,  1893,  gave  no  intimation  of  his 
purposes  regarding  the  gold  reserve.  Meantime  the 
new  Secretary  of  the  Treasury  merely  adopted  his 
predecessor's  makeshift,  appealing  to  the  banks  to 
give  up  gold  in  exchange  for  notes.*  To  this  re- 
quest, enthusiastically  echoed  in  the  press,  and 
argued  on  the  plea  of  patriotism,  the  banks  again 
responded.      In  March  and   April,    therefore,    the 

•  Treas.  Rep.,  1893,  p.  Ixxii.  •  Jlnd,^  p.  96. 

•/W</.,  1893,  p.  Ixxii. 


18931  Mr.  Carlisle  and  the  Banks  185 

astonishing  spectacle  was  witnessed  of  some  $25,- 
000,000  legal  tenders  delivered  to  the  Treasury  for 
export  gold,  offset  by  an  almost  equal  sum  of  bank 
gold  turned  over  grudgingly  for  notes. 

Such  a  situation  could  not  continue  long.  The 
very  sight  of  this  desperate  struggle  going  on  to 
maintain  the  public  credit  was  sufficient  to  alarm 
both  home  and  foreign  interests,  and  this  alarm  was 
now  reflected  everywhere.  The  feverish  money 
market,  the  disordered  and  uneasy  market  for 
securities,  and  the  renewed  advance  in  foreign  ex- 
change, combined  to  bring  matters  to  a  head.  On 
April  15,  Secretary  Carlisle  gave  notice  that  issue  of 
Treasury  gold  certificates  should  be  suspended. 
This  action  was  taken  merely  in  conformity  with 
the  Law  of  1882,  already  cited.  It  was,  however, 
public  announcement  that,  for  the  first  time  since 
resumption  of  specie  payments,  the  reserve  against 
the  legal  tenders  had  fallen  below  the  statutory  mini- 
mum. The  news  provoked  immediate  and  uneasy 
inquiry  as  to  what  the  Treasury's  next  move  would 
be.  No  definite  advices  came  from  Washington, 
but  in  the  following  week  a  very  unexpected  and 
financially  alarming  rumor  ran  through  the  markets. 
Out  of  the  $25,000,000  legal  tenders  redeemed  in 
gold  during  March  and  April,  1893,  nearly  $11, 000,- 
000  had  been  Treasury  notes  of  1890.'  Under  one 
clause  of  the  Law  of  1890,  it  will  be  remembered, 
the  Secretary  was  empowered  to  "  redeem  such 
notes  in  gold  or  silver  coin  at  his  discretion."  The 
burden  of  the  rumor  of  April  17th  was  that  the 

'  Treat.  Rep.,  1896,  p.  130. 


1 86  American  Finance  ri893 

Treasury,  now  that  its  gold  reserve  had  actually 
fallen  below  the  legal  limit,  would  refuse  further 
redemption  of  these  notes  in  gold,  and  would  tender 
only  silver  coin. 

During  the  two  or  three  days  in  which  this  rumor 
circulated,  general  misgiving  and  uneasiness  pre- 
vailed, the  security  markets  fell  into  great  disorder, 
foreign  exchange  again  rose  rapidly,  and  the  money 
market  ran  up  to  the  panicky  rate  of  fifteen  per 
cent.  On  April  20th,  the  Secretary  of  the  Treasury 
gave  out  a  public  interview,  declaring  that  in  the 
exercise  of  his  discretionary  power  he  had  **  been 
paying  gold  for  the  coin  Treasury  notes  issued  for 
the  purchase  of  silver  bullion,  and  he  will  continue 
to  do  so  as  long  as  he  has  gold  lawfully  available  for 
that  purpose."  But  this  official  statement,  instead 
of  allaying  panic,  added  fuel  to  it.  What  did  the 
Secretary  mean  by  *  *  gold  lawfully  available  for  that 
purpose  "  ?  This  was  the  very  question  at  stake, 
and  Mr.  Carlisle's  unfortunate,  though  probably  un- 
intentional, evasion  had  precisely  the  effect  which 
such  an  utterance  ought  to  have  made  impossible. 
The  disturbance  in  the  markets  extended  after  the 
issue  of  this  statement ;  it  was  not  allayed  until  the 
President,  on  April  23d,  took  the  matter  into  his 
own  hands,  announcing  in  a  public  interview  with 
the  Associated  Press  that  despite  the  discretionary 
clause  regarding  redemption  of  the  notes  of  1890, 
*'  the  declaration  of  the  policy  of  the  Government 
to  maintain  the  parity  between  the  two  metals  seems 
so  clearly  to  regulate  this  discretion  as  to  dictate 
their  redemption  in  gold." 


1893]  Trouble  in  the  Markets  187 

That  the  President  was  justified  in  this  construc- 
tion of  the  law,  must  be  apparent  from  our  examina- 
tion, in  a  previous  chapter,  of  the  debate  on  the 
Silver-Purchase  Bill.  Even  the  free-coinage  senators 
had  declared  in  1890,  on  the  floor  of  Congress,  that 
this  was  the  actual  meaning  of  the  parity  clause.  It 
is,  however,  entirely  probable  that  Mr.  Carlisle  wav- 
ered for  a  moment  in  the  face  of  the  emergency,  and 
that  moment's  vacillation  had  done  its  mischief. 
The  public  mind  was  on  the  verge  of  panic.  During 
a  year  or  more,  it  had  been  continuously  disturbed 
by  the  undermining  of  the  Treasury,  a  process  visible 
to  all  observers.  The  financial  situation  in  itself  was 
vulnerable.  In  all  probability,  the  crash  of  1893 
would  have  come  twelve  months  before,  had  it  not 
been  for  the  accident  of  i89rs  great  harvest,  in  the 
face  of  European  famine. 

But  even  this  lucky  accident  served  in  the  end 
to  rouse  again  the  spirit  of  speculation,  extremely 
dangerous  under  existing  conditions.  Huge  as 
this  country's  merchandise  exports  were,  in  the 
season  after  the  harvest  of  1891,  the  import  trade 
increased  with  almost  equal  strides.  A  year  later, 
the  balance  of  foreign  trade  had  actually  turned, 
and  in  the  nine  months  ending  with  March,  1893, 
imports  exceeded  exports  by  no  less  a  sum  than 
forty-seven  millions — a  record  unprecedented  since 
the  days  of  irredeemable  paper  money.*  Severe 
economy  alone  could  have  averted  the  approach- 
ing retribution,  and  instead  of  practicing  economy 
the  people,  like  the  Government,  were  indulging 

*  U.  S.  Bureau  of  Statistics,  Report  for  March,  1893. 


1 88  American  Finance  ti893 

in  renewed  extravagance.  The  bank  returns  were 
a  striking  witness  to  this  tendency.  Loans  of 
the  national  banks  had  increased,  during  1892,  no 
less  than  $165,000,000 — an  increase  greater  even 
than  that  of  1880 — and  of  this  sudden  expansion, 
nearly  one  hundred  millions  came  in  States  west  of 
the  Ohio  and  south  of  the  Tennessee  line.* 

The  panic  of  1893,  in  its  outbreak  and  in  its  cul- 
mination, followed  the  several  successive  steps 
familiar  to  all  such  episodes.  One  or  two  powerful 
corporations,  which  had  been  leading  in  the  general 
plunge  into  debt,  gave  the  first  signals  of  distress. 
On  February  20th,  the  Philadelphia  &  Reading 
Railway  Company,  with  a  capital  of  forty  millions 
and  a  debt  of  more  than  $125,000,000,  went  into 
bankruptcy;  on  the  5th  of  May,  the  National  Cord- 
age Company,  with  twenty  millions  capital  and  ten 
millions  liabilities,  followed  suit.  The  management 
of  both  these  enterprises  had  been  marked  by  the 
rashest  sort  of  speculation ;  both  had  been  favorites 
on  the  speculative  markets.  The  Cordage  Company 
in  particular  had  kept  in  the  race  for  debt  up  to  the 
moment  of  its  ruin.  In  the  very  month  of  the  Com- 
pany's insolvency,  its  directors  declared  a  heavy 
cash  dividend;  paid,  as  may  be  supposed,  out  of 
capital.  As  it  turned  out,  the  failure  of  this  noto- 
rious undertaking  was  the  blow  that  undermined  the 
structure  of  speculative  credit.  In  January,  National 
Cordage  stock  had  advanced  twelve  per  cent,  on  the 
New  York  market,  selling  at  147.     Sixteen  weeks 

'  Comptroller  of  the  Currency,  statements  of  December  a,  1891, 
«nd  December  9,  1892. 


1893]  The  Run  on  the  Banks  189 

later,  it  fell  below  ten  dollars  per  share,  and  with  it, 
during  the  opening  week  of  May,  the  whole  stock 
market  collapsed. 

The  bubble  of  inflated  credit  having  been  thus 
punctured,  a  general  movement  of  liquidation 
started.  This  movement  immediately  developed 
very  serious  symptoms.  Of  these  symptoms  the 
most  alarming  was  the  rapid  withdrawal  of  cash 
reserves  from  the  city  banks.  There  are  two  classes 
of  deposits  on  the  basis  of  which  these  larger  banks 
conduct  their  business :  deposits  by  individuals  and 
deposits  by  other  banking  institutions.  A  country 
bank  in  the  West  or  South,  for  instance,  is  required 
by  law  to  hold  in  cash  a  sum  fifteen  per  cent,  as 
large  as  the  sum  of  its  deposits;  but  it  may  entrust 
to  other  banks  at  certain  designated  cities  three 
fifths  of  this  cash  reserve.*  Since  demand  for  loans 
at  these  interior  points  is  nominal  except  in  the 
harvest  season,  and  since  the  city  banks  are  always 
willing  to  pay  two  per  cent,  for  the  use  of  such  in- 
terior funds,  it  follows  that  the  bulk  of  the  country 
bank  reserves  is  kept  perpetually  on  deposit  in  the 
cities. 

Opinions  differ  considerably  as  to  the  wisdom  of 
this  policy.'  It  is,  however,  practiced  as  regularly 
in  Great  Britain  as  in  the  United  States,  and  its 
purpose  is  legitimate — to  give  the  widest  employ- 
ment to  the  country's  general  money  supply.  The 
drain  of  currency  from  the  cities  to  the  interior  in 

'  U.  S.  Revised  Statutes,  Sec.  5192. 

*  Annual  Rep.  Comptroller  of  the  Currency,  1884,  p.  57 ;  1893,  p^ 
17;  Comptroller  Knox,  Treas.  Rep.,  1873,  P-  95* 


I  go  American  Finance  [1393 

the  harvest  season,  and  its  return  after  the  crops  are 
marketed — phenomena  which  we  have  frequently 
had  occasion  to  notice — are  managed  through  this 
very  system  of  re-deposit  of  reserves.  There  are 
nevertheless  some  obvious  dangers  in  the  system  in 
a  time  of  panic,  and  it  will  readily  be  understood 
that  a  violent  and  arbitrary  expansion  of  the  Govern- 
ment's paper  money  must  increase  both  the  volume 
of  such  accounts  and  the  incidental  risk.  During 
the  two  years  after  July,  1890,  these  deposits  by 
interior  banks  in  the  city  institutions  had  increased 
one  third ; '  in  New  York  they  had  actually  doubled.' 
There  had  been  no  such  ratio  of  increase  since  the 
establishment  of  the  national  banking  system ;  not 
even  during  the  resumption  period.  At  the  close  of 
1892,  no  less  a  sum  than  $204,000,000  stood  in  the 
city  banks  to  the  credit  of  such  smaller  institutions, 
every  dollar  of  this  amount  being  payable  on  de- 
mand. It  was  a  "  run  "  of  depositors  on  these 
Western  banks  which  in  1893  precipitated  the  urgent 
demand  for  return  of  deposited  reserves  from  Eastern 
institutions. 

Panic  is  in  its  nature  unreasoning;  therefore, 
although  the  financial  fright  of  1893  arose  from 
fear  of  depreciation  of  the  legal  tenders,  the  first  act 
of  frightened  bank  depositors  was  to  withdraw  these 
very  legal  tenders  from  their  banks.  But  the  real 
motive  lay  back  of  any  question  between  the  various 
forms  of  currency.  Experience  had  taught  deposi- 
tors that  in  a  general  collapse  of  credit  the  banks 

'  Comptroller  Eckels,  Treat,  Rep,,  1893,  p.  433. 
•  Ibid.,  p.  431, 


1893]      Contraction  of  the  Money  Market      1 9 1 

would  probably  be  the  first  marks  of  disaster.  Many 
of  such  depositors  had  lost  their  savings  through 
bank  failures  in  the  panics  of  1873  and  1884.  In- 
stinct led  them,  therefore,  when  the  same  financial 
weather-signs  were  visible  in  1893,  to  get  their 
money  out  of  the  banks  and  into  their  own  posses- 
sion with  the  least  possible  delay,  and  as  a  rule  the 
legal  tenders  were  the  only  form  of  money  which 
they  were  in  the  habit  of  using.  But  when  the  de- 
positors of  interior  banks  demanded  cash,  and  such 
banks  had  in  immediate  reserve  a  cash  fund  amount- 
ing to  only  six  per  cent,  of  their  deposits,'  it  followed 
that  the  Eastern  ' '  reserve  agents  ' '  would  be  drawn 
upon  in  enormous  sums. 

On  the  New  York  banks  the  strain  was  particularly 
violent.  During  the  month  of  June,  the  cash  re- 
serves of  banks  in  that  city  decreased  nearly  twenty 
millions;  during  July,  they  fell  off  twenty-one  mil. 
lions  more.*  The  deposits  entrusted  to  them  by 
interior  institutions  had  been  loaned,  according  to 
the  banking  practice,  in  the  Eastern  market;  their 
sudden  recall  in  quantity  forced  the  Eastern  banks 
to  contract  their  loans  immediately.  But  in  a 
market  already  struggling  to  sustain  itself  from 
wreck,  such  wholesale  impairment  of  resources  was 
a  disastrous  blow.  In  the  closing  days  of  June, 
the  New  York  money  rate  on  call  advanced  to 
seventy-four  per  cent.,  time  loans  being  wholly  un- 
obtainable.    The   cash  reserves  of  the  New  York 

•  Comptroller  Eck«ls,  Annual  Rep.,  1893,  p.  17. 

*  New  York  weekly  bank  statements,  April  29,  July  i,  and  Angost 
S.  1893. 


192  American  Finance  [i893 

banks,  that  week,  fell  below  the  proportion  to  liabili- 
ties required  by  the  National  Banking  Law.  The 
banks  resorted  then  to  the  emergency  device  adopted 
in  1873  and  1884.  They  appointed  a  committee  to 
appraise  such  assets  as  any  bank  in  the  Clearing- 
House  should  offer,  and  issued  against  such  assets 
certificates  receivable  for  balances  at  the  Clearing- 
House.  Enabled  thus  to  dispense  in  part  with  cash 
settlements,  the  banks  managed,  during  the  sum- 
mer strain,  to  help  out  customers  who  were  in  serious 
straits. 

But  the  strain  was  not  relaxed.  The  use  of  loan 
certificates  at  New  York,  promptly  imitated  by  the 
Clearing-House  banks  of  Boston,  Philadelphia,  Bal- 
timore, and  Pittsburg,  could  not  check  the  drain  of 
cash  from  the  East  to  the  interior.  Nor,  in  fact,  did 
even  this  wholesale  recall  of  deposits  from  the  East 
avert  the  Western  crisis.  We  have  seen  that  the 
inflation  of  credit,  during  1892,  had  been  heaviest 
by  far  in  the  interior.  The  early  withdrawals  by 
depositors  in  the  country  banks  were  only  a  slight 
indication  of  what  was  to  follow.  In  July,  this 
Western  panic  had  reached  a  stage  which  seemed  to 
foreshadow  general  bankruptcy.  Two  classes  of  in- 
terior institutions  went  down  immediately  —  the 
weaker  savings  banks,  which  in  that  section  were 
largely  joint-stock  enterprises,  and  a  series  of  private 
banks,  distributed  in  various  provincial  towns,  which 
had  fostered  speculation  through  the  use  of  their 
combined  deposits  by  the  men  who  controlled  them 
all.  In  not  a  few  instances,  country  banks  were 
forced  to  suspend  at  a  moment  when  their  own  cash 


1893]       Distress  of  Western  Institutions        193 

reserves  were  on  their  way  to  them  from  depository 
centres.  Out  of  the  total  one  hundred  and  fifty- 
eight  national  bank  failures  of  the  year,  one  hundred 
and  fifty-three  were  in  the  West  and 'South.*  How 
widespread  the  destruction  was  among  other  interior 
banking  institutions  may  be  judged  from  the  fact 
that  the  season's  record  of  suspensions  comprised  172 
State  banks,  177  private  banks,  47  savings  banks,  13 
loan  and  trust  companies,  and  16  mortgage  com- 
panies.' The  ruin  resulting  in  the  seaboard  cities 
from  the  panic  of  1893  was  undoubtedly  less  severe 
than  that  of  twenty  years  before.  But  no  such 
financial  wreck  had  fallen  upon  the  West  since  it 
became  a  factor  in  the  financial  world. 

During  the  month  of  July,  in  the  face  of  their 
own  distress,  the  New  York  banks  were  shipping 
every  week  as  much  as  $11,000,000  cash  to  these 
Western  institutions.'  Ordinarily,  such  an  enor- 
mous drain  would  have  found  compensation  in  im- 
port of  foreign  gold,  and,  in  fact,  sterling  exchange 
declined  far  below  the  normal  gold-import  point. 
But  the  blockade  of  credit  was  so  complete  that  op- 
erations in  exchange,  even  for  the  import  of  foreign 
specie,  were  impracticable.  Banks  with  impaired  re- 
serves would  not  lend  even  on  the  collateral  of  drafts 
on  London. 

So  large  a  part,  indeed,  of  the  Clearing-House 
debit  balances  were  now  discharged  in  loan  cer- 
tificates that  a  number  of  banks'  adopted  the  ex- 

'  Comptroller  Eckels,  Annual  Rep.,  1893,  p.  80. 

*  Ibid.,  p.  14. 

'  New  York  Financial  Chronicle,  July  29,  1893,  p.  164, 


194  American  Finance  [i893 

treme  measure  of  refusing  to  pay  cash  for  the  checks 
of  their  own  depositors.  Charged  with  such  refusal 
in  the  press  and  on  the  floor  of  the  United  States 
Senate,'  the  banks  simply  intimated  that  they  had 
not  the  money  to  pay  out.  This  was  not  far  from 
general  insolvency.  Long  continued,  a  situation  of 
the  kind  must  reduce  a  portion  of  the  community 
almost  to  a  state  of  barter;  and  in  fact  a  number  of 
large  employers  of  labor  actually  made  plans  in  1893 
to  issue  a  currency  of  their  own,  redeemable  when 
the  banks  had  resumed  cash  payments.  On  the 
25th  of  July,  the  Erie  Railroad  failed,  the  powerful 
Milwaukee  Bank  suspended,  and  the  governors  of 
the  New  York  Stock  Exchange  seriously  discussed 
a  repetition  of  the  radical  move  of  November,  1873, 
when  the  Exchange  was  closed.  The  very  hope- 
lessness of  the  situation  brought  its  own  remedy. 

Relief  came  in  two  distinct  and  remarkable  ways. 
Large  as  the  volume  of  outstanding  loan  certificates 
already  was,  three  New  York  banks  combined  to 
take  out  three  to  four  millions  more,  and  this  credit 
fund  was  wholly  used  to  facilitate  gold  imports.  At 
almost  the  same  time,  the  number  of  city  banks  re- 
fusing to  cash  depositors'  checks  had  grown  so  con- 
siderable that  well-known  money-brokers  advertised 
in  the  daily  papers  that  they  would  pay  in  certified 
bank  checks  a  premium  for  currency.  This  singular 
operation  virtually  meant  the  sale  of  bank  checks 
for  cash  at  a  discount.  Checks  on  banks  which  re- 
fused cash  payments  were  still  good  for  the  majority 
of  ordinary   exchanges,   but  they  were  useless  to 

'  Cpngressional  Record,  August  23,  1893. 


1893]  Premium  on  Currency  195 

depositors  who  had,  for  instance,  to  provide  large 
sums  of  cash  for  the  weekly  pay-rolls  of  their  em- 
ployees. Being  unavailable  for  such  purposes,  the 
certified  checks  were  really  depreciated — like  paper 
money  irredeemable  in  gold.  Through  the  money- 
brokers,  therefore,  these  depositors  paid  in  checks 
the  face  value  of  such  currency  as  was  offered,  plus 
an  additional  percentage. 

This  premium  rose  from  one  and  a  half  to  four  per 
cent.,  and  at  the  higher  figures  it  attracted  a  mass  of 
hoarded  currency  into  the  brokers'  hands.  The  ex- 
pedient was  not  entirely  new ;  it  had  been  tried  under 
similar  circumstances  in  the  panic  of  1873.*  But  in 
1893  it  was  applied  on  an  unusually  large  scale,  and 
it  had  the  good  result  of  helping  to  keep  the  wheels 
of  industry  moving.  Its  bad  result  was  that  it 
caused  suspension  of  cash  payments  in  the  majority 
of  city  banks;  for,  of  course,  when  a  premium  of 
four  per  cent,  was  offered  in  Wall  Street  for  any 
kind  of  currency,  it  was  out  of  the  question  for  the 
banks  to  respond  unhesitatingly  to  demands  for 
cash  by  speculative  depositors.  Most  of  the  banks 
cashed  freely  the  checks  of  depositors  where  it  was 
shown  that  the  cash  was  needed  for  personal  or  busi- 
ness uses ;  but  other  applications  they  refused. 

As  a  permanent  remedy,  moreover,  the  currency 
premium  was  futile ;  for  no  sooner  was  the  money 
thus  obtained  disbursed  in  wages  than  it  was  hoarded 
again  for  the  anticipated  profit.  But  occurring  as  it 
did  at  the  moment  when  the  banks  had  broken  the 

*  Comptroller  Knox,  Trees.  Rep.,  1873,  P-  90  \  New  York  Finan* 
eial  Chronicle,  October  4  and  October  11,  1873. 


196  American  Finance  [i893 

deadlock  of  the  foreign  exchange  market,  the  cur- 
rency operation  had  an  immediate  and  extraordinary 
influence.  With  gold  imports  at  last  made  possible 
through  the  emergency  credit  system  of  the  banks, 
and  with  four  per  cent,  premium  offered  for  gold  on 
delivery  at  New  York,  the  floodgates  of  the  foreign 
exchange  market  were  flung  wide  open.  A  gold 
importer  is  necessarily  a  buyer  of  exchange,  but  in 
a  normal  market  he  cannot  afford  to  pay  more  than 
say  $4.85  to  the  pound  sterling.  But  with  the  New 
York  premium  offered  for  gold  coin  on  delivery,  as 
high  a  price  as  $4.87^  was  paid  in  August,  1893,  for 
drafts  on  London,  and  the  drafts  thus  purchased 
were  used  at  once  to  draw  gold  from  the  Bank  of 
England  and  ship  it  to  New  York.' 

There  was  much  popular  wonder  at  the  time  over 
the  fact  that  the  Wall  Street  premium  was  paid  as 
readily  for  silver  dollars  or  for  Treasury  notes  of  1890 
as  for  gold.  But  the  need  of  the  moment  was  simply 
for  legal  instruments  of  exchange,  and  of  these  the 
currency  in  small  denominations  was  the  kind  that 
had  most  completely  disappeared  from  sight.  This 
fact  was  strikingly  demonstrated  when  the  imported 
gold  arrived.  The  unusual  sum  of  forty-one  millions 
gold  imported  during  August — the  largest  import  of 
any  single  month  in  the  Government's  history — filled 
not  only  the  depleted  bank  reserves  but  the  channels 
of  retail  trade.  People  who  had  never  before  touched 
a  gold  piece  found  themselves  making  daily  pay- 
ments in  eagles  and  double-eagles.  With  this  relief, 
the  acute  spasm  of  1893  ended. 

'  New  York  Financial  Chronicle,  August  19,  1893. 


1893]  Extra  Session  of  Congress  197 

Congress  was  summoned  in  extra  session  at  almost 
the  darkest  hour  of  distress.  The  President  issued 
his  call  on  June  30th,  the  date  for  the  assembling  of 
Congress  was  fixed  at  August  7th.  It  was  probably 
unfortunate  that  the  extra  session  was  not  opened 
earlier;  but,  as  it  happened,  the  financial  situation 
indirectly  favored  the  Administration's  purposes. 
The  session  was  expressly  called  to  repeal  the  Silver- 
Purchase  Law  of  1890,  and  in  the  popular  discussion 
of  the  day,  entire  responsibility  was  laid  on  this 
law  for  the  existing  distress.  Congressmen  from  all 
business  communities,  and  in  fact  from  all  the  popu- 
lous States,  were  made  well  aware  of  their  constitu- 
ents' wishes  before  they  started  for  Washington. 
This  was  as  true  of  the  Republicans  as  of  the  Demo- 
crats ;  indeed,  the  Republicans  were  urged  to  sustain 
repeal  not  only  by  their  constituents,  but  by  their 
party  leaders,  among  them  Mr.  Sherman,  who  then 
and  afterwards  declared  regarding  the  forced  issue 
of  legal  tenders:  "  From  the  date  of  the  passage  of 
that  law  to  its  final  repeal,  I  was  opposed  to  this 
compulsory  clause."  ' 

The  result  of  this  union  of  forces  was  interesting. 
In  the  House  of  Representatives  the  Repeal  Bill  was 
passed,  within  three  weeks,  by  the  large  majority  of 
130.  The  free-silver  Congressmen  made  an  ineffect- 
ual struggle  for  a  substitute,  proposing  successively 
bills  for  free  coinage  at  the  ratio  of  16  to  i,  of  17  to 
I,  of  18  to  I,  of  19  to  I,  and  of  20  to  i.  All  these 
propositions  were  rejected,  though  a  heavy  Demo- 
cratic  vote   supported   each.      A  final  substitute, 

'  Recollections,  ii.,  1189. 


198  American  Finance  [I893 

reviving  the  Silver-Coinage  Act  of  1878,  was  simi- 
larly defeated,  with  however  more  Democratic  votes 
cast  in  favor  of  the  substitute  than  were  cast  against 
it.  In  the  end,  although  the  Repeal  Act  was  an 
Administration  measure,  one  third  of  the  Demo- 
cratic representatives  voted  against  it.  On  the  other 
hand,  although  the  Law  of  1890  had  been  contrived, 
proposed,  and  for  two  subsequent  years  defended, 
by  a  Republican  Administration,  three  fourths  of 
the  House  RepubHcans  of  1893  voted  to  revoke  it. 

As  a  matter  of  fact,  this  ample  House  majority, 
like  many  other  similar  majorities  which  we  have 
had  occasion  to  examine,  was  not  partisan  but  sec- 
tional— the  Eastern  and  Middle  States  voting  solidly 
against  the  West  and  South.  Such  a  division,  of 
course,  ensured  majorities  in  the  lower  House,  where 
representation  was  apportioned  according  to  popula- 
tion. But  we  have  already  seen  how  different  the 
situation  was  in  the  Senate.  Not  only  did  States 
such  as  Nevada,  with  its  45,700  population,  have 
equal  voice  in  the  Senate  with  New  York  or  Massa- 
chusetts, but  the  hasty  conversion,  during  the  four 
preceding  years,  of  six  frontier  territories  into  States 
— Idaho,  Montana,  North  Dakota,  South  Dakota, 
Washington,  and  Wyoming  —  had  given  to  this 
thinly-settled  agricultural  constituency  an  actual 
numerical  advantage  in  that  body. 

Party  pressure  had  been  powerfully  applied  to  the 
Democratic  silver  senators,  and  enough  of  them  had 
been  won  over  or  coerced  to  make  a  repeal  majority 
possible.  Perceiving  this,  the  silver  faction  began 
to  filibuster  for  delay,  and  five  weeks  were  occupied 


1893]         Silver-Purchase  Law  Repealed         199 

with  nothing  but  dilatory  tactics.  Advocates  of 
repeal  retorted  by  adopting  the  drastic  expedient  of 
a  continuous  session,  without  even  a  night's  adjourn- 
ment. But  the  physical  endurance  of  the  silver 
faction  was  equal  to  the  test.  Forty  hours  had  to 
suffice;  the  silver  senators  kept  the  floor  with  a 
series  of  three-and  four-hour  speeches,  and  the  at- 
tempt to  force  a  vote  was  abandoned.  Next  came 
a  series  of  efforts  by  the  silver  senators  at  com- 
promise, chiefly  based  on  a  year's  continuance  of 
the  Silver-Purchase  Law,  and  the  immediate  coinage 
of  the  silver  bullion.  The  President's  assent  was 
claimed  to  this  provision,  apparently  under  a  real 
misunderstanding,  for  his  prompt  repudiation  of  the 
compromise  called  forth  the  angriest  demonstration 
of  the  session  from  members  of  his  own  party.  The 
plan  of  free-coinage  substitute  measures  was  then 
tried  again,  but  the  measures  were  defeated,  some- 
times by  very  close  majorities.  At  last,  on  the  30th 
of  October,  the  Repeal  Bill  passed  by  a  majority  of 
II.  In  the  Senate,  as  in  the  House,  Republican 
votes  were  needed  to  carry  it.  Out  of  the  43  votes 
for  this  Administration  measure  of  repeal,  23  were 
Republican  and  only  20  Democratic;  one  of  the 
most  anomalous  incidents  in  the  history  of  Congress. 
The  Law  of  1890,  then,  was  at  length  revoked. 
Nothing  was  left  of  it  on  the  statutes  except  the 
provisions  for  coinage  and  redemption,  and  the 
clauses  affecting  notes  already  in  circulation.  Re- 
peal was  followed  by  only  a  moderate  decline  in 
silver  bullion,  the  market  for  that  metal  having  in 
fact  taken  its  downward  plunge  in  June  of  the  panic 


200  American  Finance  [i893 

year,  when  the  price  fell  twenty-one  cents  per  ounce 
within  a  fortnight,  on  the  double  news  of  the  call  of 
Congress  and  the  suspension  of  free-silver  coinage  in 
India.  On  the  other  markets,  the  vote  had  little  or 
no  effect. 

Its  failure  to  cause  immediate  recovery  is  not  at 
all  surprising.  Repeal  of  the  Silver-Purchase  Law 
stopped  future  mischief  of  inflation,  but  it  could  not 
change  the  mischief  already  done.  It  was  hardly 
reasonable,  therefore,  to  expect,  as  many  people  did 
in  1893,  that  the  vote  of  Congress  would  restore  pros- 
perity. There  had,  it  is  true,  been  a  sharp  upward 
reaction  in  all  the  markets,  when  the  worst  midsum- 
mer strain  was  relaxed.  Undoubtedly,  the  wholesale 
import  of  foreign  gold  had  ended  the  period  of  acute 
distress;  indeed,  the  mere  news  of  the  first  gold 
engagement,  immediately  following  the  Stock  Ex- 
change's "  Black  Wednesday,"  July  26th,  resulted 
in  a  violent  recovery,  affecting  prices  not  only 
of  securities,  but  of  commercial  products.  The 
premium  on  currency  declined,  then  disappeared, 
and  presently,  though  not  until  after  some  hesita- 
tion, the  hoarded  legal  tenders  returned  from  their 
hiding-places.  At  length,  with  the  opening  of  Sep- 
tember, the  six-months'  drain  of  currency  to  the 
interior  was  ended.  It  returned  to  its  accustomed 
channels  as  rapidly  and  suddenly  as  it  had  left  them ; 
in  November,  legal  tenders  were  moving  into  New 
York  at  the  weekly  rate  of  eight  to  ten  million 
dollars.* 

'  New  York  Financial  Chronicle,  November  18,  November  25,  and 
December  2,  1893. 


18931  Trade  Stagnation  Begins  201 

Panic,  in  short,  had  ended,  but  not  until  the 
movement  of  liquidation  had  run  its  course.  The 
record  of  business  failures  for  the  year  gives  some 
conception  of  the  ruin  involved  in  this  forced  liquid- 
ation. Commercial  failures  alone  in  1893  were  three 
times  as  numerous  as  those  of  1873,  and  the  aggre- 
gate liabilities  involved  were  fully  fifty  per  cent, 
greater.'  It  was  computed  that  nine  commercial 
houses  out  of  every  thousand  doing  business  in  the 
United  States  failed  in  1873;  in  1893,  the  similar 
reckoning  showed  thirteen  failures  in  every  thou- 
sand.' The  after-effects  of  this  wholesale  de- 
struction presently  appeared.  So  long  as  prices  in 
every  security  and  commodity  were  forced  abnor- 
mally low  by  the  necessities  of  domestic  holders, 
foreign  capital  came  into  the  markets  in  great 
amounts  in  search  of  panic  bargains.  But  with 
prices  moderately  advanced  above  the  lowest,  the 
bargain-hunters  left  off  buying,  some  of  them  sold 
again  to  take  profits,  and  domestic  trade  was  left  to 
the  crippled  American  consumer. 

The  consequent  return  of  depression  and  in- 
dustrial stagnation  happened  almost  immediately 
after  the  final  vote  on  the  Repeal  Bill ;  it  was  there- 
fore alleged  triumphantly  by  the  silver  party  that 
the  law  which  stopped  the  arbitrary  issue  of  new 
legal-tender  currency  had  stopped  also  the  trade  re- 
covery. Their  opponents  had  declared  that  repeal 
was  needed  to  check  the  industrial  disorder.  Repeal 
had  been  agreed  to,  and  the  trade  situation,  instead 
of  growing  better,  was  growing  daily  worse. 

'  Dun's  Review,  January  13,  1894.  •  Ibid, 


202  American  Finance 


[1893 


To  people  with  a  leaning  towards  currency  in- 
flation, this  was  a  captivating  post-hoc  argument ; 
it  played  its  part  in  subsequent  political  campaigns. 
No  argument,  however,  could  have  been  more  ab- 
surd as  applied  to  the  autumn  trade  stagnation  of 
1893.  Trade,  it  is  true,  had  been  cramped  and 
crippled  by  the  almost  complete  disappearance  of 
the  circulating  medium  during  the  panic  months. 
But  in  the  four  months  beginning  with  July,  1893, 
the  gold  imports,  the  Government  disbursements 
against  its  deficit,  and  the  large  issue  of  bank  notes 
to  supply  the  lack  of  currency,'  had  between  them 
increased  the  actual  stock  of  money  by  the  huge 
sum  of  $125,000,000.'  While  hoarding  of  other  cur- 
rency was  in  progress,  these  new  supplies  merely 
filled  the  void  in  circulation.  But  we  have  already 
seen  how,  in  the  Autumn  months,  the  hoarded 
currency  poured  back  into  the  channels  of  trade. 
In  the  closing  days  of  1893,  so  far  from  true  was  the 
assumption  that  the  currency  supply  had  been  con- 
tracted through  repeal  of  the  Act  of  1890,  that  the 
increase  in  the  available  circulating  medium  was 
more  rapid  than  at  any  previous  period  of  our  his- 
tory.* We  shall  find  this  fact  important  in  con- 
nection with  the  events  of  1894. 

It  was  the  judgment  of  many  experienced  watch- 
ers of  the  national  finances  that  the  autumn  of  1893 
was  the  time  to  issue  bonds  for  gold  under  the  Re- 
sumption Act  and  restore  the  Treasury's  impaired 
reserve.     As  a  mere  commercial  question,  there  can 

'  Treas.  Rep.,  1894,  p.  13.  •  Ibid.,  1893,  p.  18. 

*  Ibid.,  1894,  p.  115. 


1893]  Heavy  Revenue  Deficit  203 

be  little  doubt  that  this  judgment  was  correct.  The 
hoarded  currency  was  returning  to  circulation,  the 
gold  supply  in  the  banks  was  exceptionally  large, 
and  gold  exports  had  not  yet  begun.  Mr.  Carlisle, 
however,  made  no  move  or  inquiry  in  that  direction, 
and  we  shall  presently  see  what  other  arguments  in 
his  view  outweighed  this  reasoning.  During  the 
financial  convulsion  of  1893,  the  Treasury  itself  had 
been  passing  through  a  curious  experience.  In  July, 
the  "  currency  famine  "  and  the  check  to  gold  ex- 
ports stopped  the  drain  on  the  Treasury's  gold 
reserve.  The  banks  had  not  notes  enough  for  their 
retail  uses,  much  less  had  they  any  to  spare  for  re- 
demption, and  if  they  had  possessed  such  notes, 
there  was  no  demand  for  gold  to  remit  against 
foreign  exchange. 

The  situation  of  midsummer  therefore  put  an  end 
to  the  gold  withdrawals.  The  situation  of  the  early 
autumn  did  more.  The  first  use  made  of  the  im- 
ported foreign  gold  was  in  revenue  payments  to  the 
Government.  In  August,  forty-seven  per  cent,  of  the 
New  York  customs  payments  to  the  Treasury  were 
made  with  gold  coin ;  in  September,  fifty-eight  per 
cent.,  and  in  the  last  six  months  of  1893,  not  less 
than  $16,000,000  gold  was  received  on  revenue  at 
the  New  York  Custom  House  alone.'  In  other 
branches  of  the  revenue,  the  Treasury  must  have 
received  in  revenue  from  fifty  to  sixty  millions  gold. 
If,  then,  the  Government  had  used  only  legal  tenders 
for  its  own  disbursements — and  at  the  time  the 
notes  would  have  been  -welcomed  by  the  Treasury's 
'  Treat,  Rep,,  1894,  p.  121  ;  1893,  p.  11. 


204  American  Finance  [i893 

creditors — its  gold  reserve  would  necessarily  have 
risen,  by  the  close  of  1893,  to  at  least  $170,000,000. 
Instead  of  this,  the  $103,683,000  gold  reserve  of 
August  loth  was  actually  the  maximum  of  the 
season.  "  By  October  19th,"  Mr.  Carlisle  remarked 
in  his  annual  report,  "  it  had  been  diminished  by  re- 
demptions of  currency  and  otherwise  to  $81,551,385, 
which  is  the  lowest  point  it  has  ever  reached."  ' 

But  the  explanation  of  this  seeming  anomaly  is 
simple.  The  loss  of  gold  by  the  Treasury,  in  the 
face  of  its  large  receipts  of  specie,  was  not  at  all  oc- 
casioned by  presentation  of  legal  tenders  for  redemp- 
tion ;  Mr.  Carlisle  was  entirely  mistaken  in  his  state- 
ment. During  the  four  months  after  August,  1893, 
barely  two  million  dollars  in  legal  tenders  were 
presented  for  redemption  ' — an  altogether  insignifi- 
cant withdrawal.  The  truth  is,  that  the  Treasury 
had  nothing  left  but  the  gold  reserve  with  which  to 
pay  its  ordinary  bills.  The  Harrison  Administra- 
tion, as  we  saw  at  the  beginning  of  this  chapter, 
turned  over  in  March  to  its  successor  only  a  meagre 
$25,000,000  available  surplus  outside  the  gold  re- 
serve. In  the  middle  of  1893,  when  the  country's 
commercial  structure  collapsed,  sources  of  public 
revenue  instantly  dried  up.  Receipts  had  hardly 
met  expenditures  during  the  whole  preceding  year;* 
the  sudden  fall  in  revenue,  therefore,  left  the  Treas- 
ury with  a  heavy  monthly  deficit,*  and  an  outflow  of 
every  kind  of  money  in  the  Government's  hands 
ensued.     The  customs  revenue  was  the  first  to  con- 

'  Treas.  Rep.,  1893,  p.  Ixxiii.  '  Ibid.,  1894,  p.  10. 

»  Ibid.,  1893,  p.  26.  *  Ibid.,  1894,  p.  23. 


1893]      Continued  Loss  of  Treasury  Gold     205 

tract  ;  for  with  the  blockade  of  credit  and  the 
paralysis  of  domestic  trade,  import  of  foreign  mer- 
chandise necessarily  fell  to  the  narrowest  proportions. 
It  is  hardly  necessary  to  debate  the  familiar  argument 
that  the  decrease  in  importations  was  caused  entirely 
by  expectation  of  a  lower  tariff.'  Very  possibly  this 
expectation  encouraged  some  hesitating  merchants 
to  hold  off  until  the  Administration's  policy  was  de- 
fined ;  it  would  naturally  have  precisely  that  effect. 
But  as  compared  with  the  deterrent  influence  exerted 
by  the  inability  of  importers  to  discount  their  notes 
for  settlement  of  foreign  purchases,  and  by  the  hope- 
less outlook  for  a  domestic  selling  market,  the  influ- 
ence of  anticipated  tariff  changes  was  trivial.' 

All  branches  of  public  income,  in  fact,  fell  off 
simultaneously  in  their  yield,  and  the  Treasury  sur- 
plus continuously  declined.  The  deficit  was  met 
from  the  legal-tender  surplus  as  long  as  that  surplus 
held  out ;  when  it  was  virtually  exhausted,  which 
happened  very  soon,  there  was  nothing  left  to  do 
but  to  stop  payment  on  Government  appropriations 
or  to  use  the  gold  reserve.  Mr.  Sherman  has  denied 
the  right  of  the  Secretary  to  use  this  fund  except  in 
redemption  of  legal-tender  notes,*  and  there  is  some- 
thing to  say  for  that  contention.  But  the  Acts  of 
1875  and  1882  were  obscure  on  this  vital  question, 
and  the  alternative  involved  some  disquieting  possi- 
bilities.    Mr.   Carlisle,  at  all   events,   rejected   the 

'  Shennan,  Recollections,  ii.,  1206. 

•  New  York  Chamber  of  Commerce,  Annual  Rep.  for  1893,  Part 
II.,  pp.  86  and  87, 
?  '*  Deficiency  in  Revenue,"  Forum  for  April,  1896,  p.  141. 


2o6  American  Finance  (I893 

expedient,  and  drew  on  the  only  surplus  left  in  the 
Treasury.  During  the  last  six  months  of  1893  the 
sum  of  $79,ooo,cxx)  in  gold  coin  was  paid  by  the 
Treasury  to  meet  its  debit  balances  at  the  New  York 
Clearing-House.' 

In  the  last  month  of  1893,  then,  there  was  pre- 
sented the  double  situation  of  a  heavy  deficit  in 
public  revenue  and  a  fall  of  the  gold  reserve  twenty 
million  dollars  below  the  statutory  limit.  The 
monthly  revenue  statements  showed  a  steady  de- 
crease in  receipts,  and  a  steady  increase  in  the 
deficit.  Not  only  was  the  gold  reserve  impaired, 
but  the  entire  surplus  in  the  Treasury,  outside  of 
fractional  coin  and  unavailable  bank  notes,  amounted 
to  less  than  the  proper  minimum  of  that  reserve 
alone.*  Foreign  exchange  was  rising  rapidly,  and  a 
fresh  outflow  of  gold,  with  consequent  renewed  pres- 
sure of  legal  tenders  for  redemption,  was  impending. 
It  was  plain  that  action  of  some  sort  by  the  Treasury 
must  be  taken,  and  very  soon.  In  the  face  of  this 
situation,  Congress  reassembled. 

'  Treas.  Rep.,  1894,  p.  119.  *  Jiid.,  p.  55. 


CHAPTER   IX 

THE  GOVERNMENT  LOANS  AND  THE  TARIFF 
OF   1894 

SECRETARY  CARLISLE  was  undoubtedly  em- 
barrassed  by  the  relations  of  himself  and  his 
party  to  the  Resumption  Act.  He  had  voted 
against  the  Law  in  1875,  and  in  so  voting  he  had 
acted  with  every  member  of  his  party  then  in  Con- 
gress. A  bold  and  aggressive  finance  minister  would 
probably,  in  the  autumn  of  1893,  have  ignored  the 
past,  employed  such  powers  as  could  be  asserted 
under  existing  laws,  and  grappled  at  once  with  the 
dilemma  of  the  Treasury.  But  Mr.  Carlisle's  tem- 
perament was  cautious ;  he  had  been  the  strictest  of 
strict  constructionists  in  his  interpretation  of  execu- 
tive powers;  and,  reasoning  on  that  basis,  he  dis- 
trusted the  powers,  which  were  undoubtedly  very 
vague,  under  the  Act  of  1875.  He  waited,  therefore, 
until  he  could  formally  lay  his  case  before  his  party's 
majority  in  Congress. 

In  his  annual  report  of  December  19,  1893,  the 
Secretary  pointed  out  the  heavy  deficit  in  current 
revenue,  and  the  fact  that,  except  for  the  depleted 
gold   reserve,   the  Treasury's  accumulated  surplus 

ao7 


2o8  American  Finance  [i893 

was  almost  exhausted.  He  asked  Congress  to 
authorize  a  bond  issue,  proceeds  of  which  the  Treas- 
ury might  draw  upon  to  supply  future  deficiencies 
in  revenue.  As  an  alternative  to  a  large  issue,  he 
proposed  a  plan  modelled  on  the  English  system  of 
exchequer  bills;  the  proposition  being  to  "  execute 
from  time  to  time,  as  may  be  necessary,"  Govern- 
ment obligations  bearing  three  per  cent,  interest, 
redeemable  one  year  from  date,  "  and  that  he  be 
permitted  to  sell  them  at  not  less  than  par,  or  use 
them,  at  not  less  than  par,  in  payment  of  public 
expenses  to  such  creditors  as  may  be  willing  to  re- 
ceive them."'  This  was  a  rational  proposition ;  it 
was  vastly  better  than  the  general  plan  of  a  three 
per  cent,  five-year  bond  issue  proposed  in  the  last 
days  of  the  preceding  Congress.'  The  plan,  in  fact, 
embodied  a  principle  adopted  by  almost  every  well- 
managed  Government  in  a  temporary  revenue  short- 
age, and  it  did  not  raise  the  vexed  question  of  the 
gold  reserve.  This  was  the  Secretary's  first  sug- 
gestion ;  it  never  received  the  slightest  notice  on 
the  part  of  Congress. 

Regarding  the  gold  fund  for  the  redemption  of 
legal  tenders,  Mr.  Carlisle's  remarks  were  less  judi- 
cious. They  expressed  distinctly  his  own  misgiv- 
ing over  the  Treasury's  existing  powers,  which  was 
not  politic  when  a  strong  probability  existed 
that  he  would  be  driven  to  use  these  very  powers. 
What  he  asked  of  Congress  was,  "  not  only  that  he 

'  Treas.  Rep.,  1893,  p.  Ixxi. 

»  "  Deficiency  in  Revenue,"  John  Sherman,  Forum  for  April, 
1896. 


18941      Dangerous  Condition  of  Treasury      209 

should  be  clothed  with  full  authority  to  procure  and 
maintain  an  ample  reserve  in  coin,  but  that  the  pur- 
pose for  which  such  reserve  is  to  be  held  and  used 
should  be  made  as  comprehensive  as  the  duty  im- 
posed on  him  by  law,"  and  he  expi'essed  his  own 
belief  that  even  a  reserve  of  one  hundred  millions 
gold,  in  the  existing  status  of  the  currency,  was 
insufficient.* 

Having  thus  made  his  formal  appeal  to  Congress, 
the  Secretary  again,  and  necessarily,  waited.  Un- 
fortunately, the  financial  situation  could  not  wait. 
December  and  January  are  always  months  of  heavy 
drain  on  the  Treasury,  even  in  normal  years,  and  in 
January,  1894,  the  Government  approached  nearer 
to  actual  bankruptcy  than  at  any  time  in  the  present 
generation.  Outside  of  the  gold  reserve  and  un- 
available funds  such  as  bank  notes  under  redemp- 
tion and  fractional  silver  coin,  the  Treasury  held 
at  the  close  of  January  barely  twelve  million  dol- 
lars. As  for  the  gold  reserve  itself,  this  fund  had 
fallen,  by  the  middle  of  the  month,  below  $68,000,- 
000.*  As  in  the  summer  of  1893,  it  was  now  de- 
pleted, not  by  presentation  of  legal  tenders  for 
redemption — for  little  gold  was  going  out  as  yet  on 
export — but  through  its  use  for  ordinary  Government 
expenditures.*  Beginning  with  October,  the  revenue 
deficit  had  exceeded  seven  million  dollars  monthly; 
A  few  months  more  of  such  deficiency  would  use  up 
every  dollar  that  was  left  in  the  Treasury,  including 
the  gold  reserve. 

■^  Tr<as.  Rtp.,  1893,  p.  Ixxii.  »/5i</.,  1894,  p.  Ixviii. 

*  Ilnd.,  pp.  10,  119.- 
M 


210  American  Finance  [I894 

"  Congress  alone,"  Mr.  Carlisle  said  in  his  report, 
"  has  the  power  to  adopt  such  measures  as  will  re- 
lieve the  present  situation  and  enable  the  Treasury 
to  continue  the  punctual  payment  of  all  legitimate 
demands  upon  it."'  Had  this  statement  been 
strictly  accurate,  the  outlook  would  have  been  dark 
indeed.  For  so  indifferent  was  this  extraordinary 
Congress  to  the  Treasury's  situation  that  the  bills 
drawn  up  in  accordance  with  the  Secretary's  views 
were  repudiated  by  the  very  Congressmen  who  in- 
troduced them,*  were  not  even  granted  the  courtesy 
of  a  preliminary  discussion,  but  were  referred  with 
out  debate  to  hostile  committees,  where  they  were 
buried.     Nothing  was  ever  heard  of  them  again.' 

When  it  was  evident  that  the  Congressional  major- 
ity would  not  even  discuss  the  needs  of  the  situation, 
the  Secretary's  hand  was  forced.  In  the  middle  of 
January,  Mr.  Carlisle  formally  notified  the  chairman 
of  the  Senate  Finance  Committee  that  in  default  of 
action  by  the  legislative  body,  the  Administration 
would  be  compelled,  in  order  to  avert  public  in- 
solvency, to  assume  the  right  asserted  by  its  prede- 
cessors, and  issue  bonds  to  restore  the  gold  reserve.* 
Congress  again  did  nothing  ;  on  January  17th, 
therefore,  bids  were  invited  for  an  issue  of  fifty 
million  five  per  cent,  bonds,  redeemable  ten  years 
after  date.     Subscriptions,  the  circular  continued, 

'  Treas.  Rep.,  1893,  p.  Ixxi. 

*  Remarks  of  D.  W.  Voorhees  in  U.  S.  Senate ;  Congressional 
Record,  January  16,  1894, 

'  Index  to  Congressional  Record,  53d  Congress,  ad  Session,  p.  118. 

*  Letter  to  Senator  Voorhees,  January  13,  1894. 


18941      Congress  Attacks  Administration      211 

"  must  be  paid  in  United  States  gold  coin,"  and 
"  no  proposal  will  be  considered  at  a  lower  price 
than  117.223,  which  is  the  equivalent  of  a  three  per 
cent,  bond  at  par." 

Several  interesting  incidents  at  once  developed. 
The  action  of  Congress,  to  begin  with,  showed  again 
how  completely  Mr.  Carlisle  had  misjudged  that 
body  in  his  appeal  to  it  a  month  before.  Bill  after 
bill,  and  resolution  after  resolution,  was  introduced 
and  angrily  debated,  denying  the  Secretary's  right 
to  issue  bonds,  declaring  the  proposed  bond  issue 
illegal,  prohibiting  interest  payment  on  the  bonds, 
and  otherwise  endeavoring  to  obstruct  or  cripple  the 
whole  operation.*  It  was  now,  indeed,  that  the 
Secretary's  impolitic  discussion  of  his  powers,  in  his 
report  of  the  previous  December,  had  its  logical  re- 
sult ;  the  opposition  rested  its  argument  against  the 
bond  issue  on  Mr.  Carlisle's  own  official  language.* 

During  the  progress  of  this  debate,  the  obstruc- 
tionists received  some  characteristic  aid  from  an  un- 
expected quarter.  The  leaders  of  the  workingmen's 
Kniglits  of  Labor  organization,  which  at  that  time 
was  controlled  by  an  unusually  blatant  group  of 
agitators,  applied  to  the  courts  for  an  injunction 
against  the  bond  issue.  But  the  result  of  this 
performance  proved  that  the  agitators  had  made 
a  blunder.  The  injunction  suit  was  promptly 
thrown  out  by  the  Federal  District  Court,  first  on 
the  ground  that  the  complainants  had  no  standing 
in  the  case,  but  second,  and  of  much  more  import- 

'  Index  to  Congressional  Record ,  53d  Congress,  2d  Session,  p.  II& 
•  W.  V.  Allen,  Senate  speech,  January  25,  1894. 


212  American  Finance  [i894 

ance  as  a  precedent,  on  the  ground  that  the  Sec- 
retary had  an  undoubted  right  to  issue  bonds  for 
redemption  purposes,  and  to  elect  in  his  discretion 
that  the  bonds  should  be  payable  in  gold.'  The 
Knights  of  Labor  had  unintentionally  done  the  Ad- 
ministration a  considerable  service;  the  courts  of 
law  had  now  publicly  taken  their  stand  beside  the 
Treasury.  Meantime,  also,  the  Congressional  oppo- 
sition proved  to  be  more  vociferous  than  dangerous ; 
the  silent  legislators  took  care  that  none  of  its 
measures  reached  a  vote.  Beyond  this  mild  and 
equivocal  support  of  the  public  credit,  however,  the 
conservative  element  in  Congress  did  nothing. 

With  the  bond  issue  formally  announced,  the  Sec- 
retary's next  concern  was  with  the  markets.  The 
outlook  in  that  quarter  was  hardly  more  encouraging 
than  in  Congress.  Not  the  slightest  eagerness  was 
anywhere  displayed  by  investors  or  institutions  to 
subscribe  for  the  new  five  per  cents;  nor  is  this 
reluctance  difficult  to  understand.  Along  with  all 
other  domestic  markets,  the  investment  market  had 
relapsed  into  stagnation  and  despondency.  Prices 
for  all  securities  were  very  low  and  capital  very 
timid.  There  had  been  for  weeks  no  demand  for 
Government  bonds  on  the  open  market;  the  out- 
standing four  per  cents,  which  had  longer  to  run 
than  the  proposed  new  issue,  were  selling  at  ii2|^, 
against  the  price  of  117J  asked  for  the  new  fives. 
So  far  as  concerned  the  prospect  of  European  bids, 
it  should  be  noticed  that  the  minimum  price  stipu- 

'  Decision  of  U.  S.  Judge  Cox,  District  of  Columbia,  January  30, 
1894. 


1894J  The  First  Bond  Issue  213 

lated  for  this  ten-year  bond  was  the  equivalent  of  a 
three  per-cent.  bond  at  par,'  whereas  the  French 
three  per  cents,  a  perpetual  issue,  were  then  selling 
at  97  in  Paris,  while  the  2|  per  cent.  British  consols 
brought  only  98I.  It  is  true  the  recent  redemption 
of  its  own  debt  at  a  premium  had  greatly  enhanced 
the  credit  of  the  United  States.  But  against  this 
advantage  must  be  set  the  fact  that  Congress,  at  the 
very  time  when  Europe  was  invited  to  bid  for  the 
bonds  of  1894,  was  publicly  discussing  measures  to 
repudiate  the  entire  issue. 

Judged  by  Executive  precedent  and  tradition, 
there  was  need,  in  the  face  of  this  dubious  situation, 
of  prompt  negotiation  with  the  larger  financial  in- 
terests. That  such  solicitation  is  not  only  prudent 
business  policy,  but  the  legitimate  oflfiice  of  a  national 
finance  minister,  has  been  attested  in  nearly  all  issues 
of  public  loans,  here  and  abroad,  during  the  century. 
Mr.  Carlisle  was,  however,  very  reluctant  to  give  in 
any  way  the  appearance  of  affiliation  with  the  bank- 
ers. This  reluctance  would  perhaps  have  been 
excusable,  if  anything  was  still  to  be  gained  or  lost 
according  as  Congressional  prejudice  should  be 
suited.  But  the  time  was  past  when  Congress 
needed  to  be  reckoned  in  with  the  Secretary's  judg- 
ment of  his  duties;  all  that  could  possibly  result 
now  from  neglect  to  meet  the  large  investment  in- 
terests face  to  face,  was  danger  of  losing  the  advan- 
tage in  a  bargain. 

Only  two  weeks  had  been  allowed  between  the 
issue  of  the  circular  and  the  closing  of  subscrip- 
'  Circular  of  Januarjr  17,  1894. 


214  American  Finance  (i694 

tions,  and  during  three  fourths  of  this  period  the 
Secretary  did  nothing  whatever.  Four  or  five 
days  before  the  final  date,  it  became  evident,  from 
the  slow  receipt  of  bids,  that  as  matters  stood,  the 
loan  would  not  be  taken.  This  was  too  grave  a 
possibility  to  be  lightly  contemplated ;  the  Secretary, 
therefore,  laying  aside  his  scruples  by  virtue  of  ne- 
cessity, came  on  in  person  to  New  York.  He  found 
the  situation  really  critical  in  this  eleventh  hour. 
Most  of  the  banks  honestly  did  not  wish  to  buy  the 
bonds ;  all  of  them  looked  on  the  investment  as  a 
questionable  business  move.  But  the  arguments 
employed  in  1893,  when  the  banks  were  urged  to 
give  up  gold  for  legal-tender  notes,  were  again  in- 
voked; the  press  again  spurred  on  the  reluctant 
banking  interests ;  above  all,  the  plea  that  another 
panic  must  at  all  hazards  be  averted  was  forced  into 
consideration.  It  might  have  been  imagined,  from 
the  extraordinary  nature  of  the  episode,  that  it  was 
Turkey  or  China  which  was  standing  hat  in  hand  in 
the  money  market.  The  outcome  of  this  humiliating 
incident  was,  however,  that  the  fifty  million  bonds 
were  taken,  eighty  per  cent,  of  them  going  to  the 
New  York  banks  at  the  upset  price.'  If  the  "  syndi- 
cate bid  "  from  the  New  York  banks  were  to  be  elim- 
inated from  the  reckoning,  the  actual  bids  received 
for  the  bond  issue  of  February  i,  1894,  would  cover 
less  than  ten  millions  out  of  the  fifty  millions  offered." 
The  lack  of  any  thorough  understanding  with  sub- 

'  Muhleman,  Monetary  Systems  of  the  World,  historical  appendix, 
p.  221. 
*  Muhleman,  appendix. 


1894]      Banks  Draw  Out  Treasury  Gold     2 1 5 

scribers  ha<f  another  very  embarrassing  result.  The 
bonds,  under  the  terms  of  the  Resumption  Act,  were 
to  be  sold  for  "  not  less  than  par,  in  coin,"  and  the 
circular  to  subscribers  required  payment  in  gold. 
Subscriptions  were  made  in  the  form  required,  and 
$58,660,000  gold  coin  was  duly  delivered  by  sub- 
scribers to  the  Treasury.  But  before  making  these 
payments,  subscribers  first  withdrew  $24,000,000 
gold  from  the  Treasury  through  redemption  of  legal 
tenders,  and  then  turned  in  this  same  gold  again  to 
pay  for  bonds.  In  effect,  therefore,  nearly  half  of 
the  subscriptions  were  paid,  not  in  gold,  but  merely 
in  legal  tenders.'  That  this  was  a  proper  Tnove  I  do 
not  believe.  It  was  not,  of  course,  illegal,  because 
any  holder  of  the  notes  had  a  statutory  right  to 
present  them  for  redemption,  and  technically,  the 
bond  subscribers  were  as  much  entitled  to  such  use 
of  legal  tenders  as  were  the  gold  exporters.  But 
there  was  this  decided  difference  between  the  two 
operations :  .the  gold-exporters  had  been  forced  by 
the  Government  to  take  the  notes  instead  of  stand- 
ard money,  and  were  therefore  fully  justified,  in  a 
trade  emergency,  in  demanding  gold  redemption. 
The  bond-subscribers,  on  the  other  hand,  had  con- 
sented to  a  contract  under  which  they  received  a 
full  consideration,  while  they  knew  the  tacit  con- 
sideration in  the  Government's  behalf  to  be  the 
adding  of  fifty-eight  million  dollars  to  its  actual  gold 
reserve.  The  use  of  coin  obtained  on  note  redemp- 
tion was  therefore  an  undoubted  subterfuge.  Its 
justification,  if  it  can  be  justified  at  all,  lies  in  the 
'  M^hleman,  appendix, 


2i6  American  Finance  [i894 

fact  that  the  New  York  banks  were  reluctant  and 
unwilling  subscribers,  and  that  they  chose  this 
course  as  a  means  of  saving  the  loan  from  failure, 
while  protecting  their  own  gold  holdings  which  they 
were  not  willing  to  surrender.  Whether  this  un- 
fortunate result  could  have  been  avoided  by  early 
and  definite  negotiation  with  the  banks  is,  of  course, 
an  open  question.  The  fact  remains,  however,  that 
no  effort  had  been  made  by  the  Treasury  in  that 
direction. 

If  the  bond  subscriptions  had  all  been  paid  in  gold 
obtained  from  outside  sources,  the  Treasury's  gold 
reserve  would  have  risen  by  the  second  week  of 
February  to  something  like  $130,000,000,  As  it 
was,  the  highest  point  touched  by  the  fund  was 
$107,000,000,  on  the  6th  of  March,  1894.  In  other 
words,  the  margin  over  the  traditional  hundred- 
million  limit,  after  the  February  bonds  had  been 
sold  and  paid  for,  was  as  narrow  as  it  had  been  a 
year  before,  and  it  soon  appeared  that  such  a  reserve 
was  as  inadequate  as  it  had  been  in  1893.  It  is  true, 
the  presentation  of  legal  tenders  for  redemption  by 
subscribers  to  the  bonds  had  increased  considerably 
the  Treasury's  surplus  in  that  form  of  money,*  so 
that  after  January,  1894,  the  gold  reserve  was  no 
longer  drawn  upon  to  meet  the  monthly  deficit." 
But  we  have  seen  that  foreign  exchange  was  by  this 
time  moving  steadily  against  the  United  States,  and 
we  have  also  seen  why  the  movement  was  com- 
mercially inevitable.  The  Treasury  had  indeed 
taken  from  outside  domestic  circulation,  through  its 

•  Treas.  Rep.,  1894,  p.  55,  *  Ibid.,  p.  119. 


I894J  Flight  of  Foreign  Capital  2 1 7 

February  loan,  fifty-eight  million  dollars.  But  this 
withdrawal  did  not  represent  a  sum  one  half  as  great 
as  the  additions  to  the  circulating  medium  in  the 
last  six  months  of  1893,  and  the  revenue  deficit, 
moreover,  was  even  now  throwing  back  upon  the 
money  market  four  to  nine  millions  monthly  of  the 
Treasury's  increased  surplus.'  There  was  no  em- 
ployment for  this  money  in  the  depressed  interior 
trade.  Even  as  compared  with  the  similar  period 
of  1893,  the  country's  aggregate  bank  exchanges,  in 
the  first  half  of  1894,  decreased  no  less  than  twenty- 
eight  per  cent.*  In  accordance  with  all  precedent 
there  could  be  but  one  result.  Gold  exports  began 
in  quantity  during  April  ;  presentation  of  legal 
tenders  for  redemption  followed;  by  August  the 
gold  reserve  had  fallen  to  a  lower  level  than  it 
reached  even  in  January. 

The  movement  of  foreign  exchange  in  1894,  with 
the  heavy  drain  of  gold,  neither  resulted  from  nor 
was  attended  by  a  balance  of  foreign  merchandise 
trade  against  this  country.  It  was,  however,  greatly 
emphasized  by  the  recall  of  invested  foreign  capital. 
The  total  foreign  investment  fund  in  the  United 
States  had,  to  be  sure,  been  substantially  reduced 
by  Europe's  liquidation  during  the  panic  of  1893  ;  the 
Treasury's  estimate  of  the  foreign  capital  then  re- 
called was  one  hundred  million  dollars.'  But  at  the 
opening  of  1894,  there  still  remained  an  immense 

'  Treas.  Rep.,  1894,  p.  22. 

'  New  York  Financial  Chronicle,  p.  3,  July  7,  1894. 
»  W.  C.  Ford,   U.  S.  Bureau  of  Statistics,  Annual  Rep.,  1893, 
p.  xxiv. 


2i8  American  Finance 


[1894 


fnvestment  fund  subject  to  such  withdrawal.  One 
estimate,  by  an  experienced  dealer  on  international 
account,  reckoned  the  aggregate  of  foreign  invest- 
ments in  the  United  States  as  high  as  $2,400,000,- 
000,'  and  the  conjecture,  though  in  all  probability 
greatly  exaggerated,  gives  some  idea  of  the  factors 
with  which  such  a  problem  has  to  deal. 

That  liquidating  sales  for  this  account  in  1894  were 
extremely  large  is  a  matter  of  public  evidence ; '  nor, 
when  the  situation  at  the  time  is  soberly  reviewed, 
will  it  be  found  that  the  action  of  the  foreign  in- 
vestors was  unreasonable.  A  good  share  of  this 
European  capital  had  been  placed,  as  we  saw  in  our 
review  of  the  period  prior  to  1890,  in  American  rail- 
way shares  and  bonds.  So  great  had  been  the  strain 
of  the  panic  on  these  largely  over-capitalized  enter- 
prises, that  within  two  years  nearly  one  fourth  of  the 
total  railway  capitalization  of  the  United  States  had 
passed  through  the  bankruptcy  courts.'  Some  of 
these  failures  had  been  of  such  a  character  as  com- 
pletely to  shatter  confidence  in  the  methods  of 
American  corporations.  Examination  in  one  of  the 
largest  of  these  insolvencies  proved  that  the  com- 
pany's officers,  within  two  years,  had  sunk  upwards 
of  four  million  dollars  in  reckless  speculation  in  the 
shares  of  other  railways.*     Deceptive  balance-sheets 

»  "Why  do  We  Export  Gold?"  A.  S.  Heidelbach,  Forum  iot 
February,  1895;  New  York  Financial  Chronicle^  vol.  Ix.,  pp.  542, 
585.  630. 

*  New  York  Financial  Chronicle,  May  4,  1895. 

'  U.  S.  Inter-State  Commerce  Commission,  Annual  Hep.,  1894, 
p.  69. 

*  Report  of  the  Philadelphia  aod  Reading  Railroad  r^c^Tcr;, 
April,  1894. 


1894]  The  Labor   Uprising  219 

were  repeatedly  shown  up  in  the  subsequent  inves- 
tigation, as  with  the  Atchinson,  Topeka  &  Santa 
F6,  whose  $100,000,000  shares  were  distributed 
throughout  Europe,  and  which,  when  its  books  were 
overhauled,  was  shown  to  have  officially  overstated 
income  seven  million  dollars  within  three  years.' 
Disclosures  of  this  sort,  a  large  number  of  which  came 
to  public  knowledge  during  1894,  were  certainly 
enough  to  start  a  movement  of  foreign  liquidation. 
Nor  was  there  any  improvement  during  the  year 
1894  in  the  finances  of  the  companies;  all  of  them 
went  from  bad  to  worse.* 

The  prostrated  transportation  industry  had  per- 
haps the  most  immediate  influence  on  the  movement 
of  foreign  capital;  but  as  reflecting  the  industrial 
situation,  it  was  only  an  incidental  symptom.  Labor 
troubles  inevitably  follow  financial  collapse  and  in- 
dustrial prostration ;  such  demonstrations  came  on 
the  heels  of  the  panics  of  1857,  of  1873,  and  of  1884, 
as  surely  as  they  attended  that  of  1893.  But  in 
1894  there  were  periods  when  industrial  unrest 
seemed  to  assume  the  proportions  of  anarchy.  In 
April  began  that  extraordinary  demonstration,  of 
which  it  is  hard  to  say  whether  the  farcical  or  the 
tragic  element  predominated — the  march  of  the  so- 
called  "  Coxey's  army";  a  band  of  agitators  and 
discouraged  laborers,  reinforced  by  such  tramps  as 
joined  it  on  the  way,  which  started  eastward  from 
the  Mississippi,  overrunning  towns  and  seizing  rail- 
way trains,  with  the  avowed  purpose  of  gathering 

*  Stephen  Little,  Report  on  the  Atchison,  Topeka,  and  Santa  Yi 
Railroad  accounts,  August  and  November,  1894. 

•  N.  Y.  Financial  Chronicle,  Feb.  33,  1895. 


220  American  Finance  [i894 

the  Eastern  proletariat  to  its  number  and  appearing 
by  thousands  before  the  Capitol  at  Washington  to 
demand  relief. 

United  States  troops  had  to  be  summoned  to 
disperse  this  rapidly  increasing  mob.  Revolts  of 
laborers  against  wage  reductions  followed  in  quick 
succession.  Two  hundred  thousand  coal-miners 
rose  in  the  Middle  States,  and  at  the  close  of  June 
the  labor  demonstration  culminated  in  the  Chicago 
Railway  Union  strike — an  episode  in  many  ways 
more  serious  even  than  the  Pittsburg  riots  of  1877. 
In  July  of  1894  the  labor  organizations  literally  took 
possession  of  the  railway  system  converging  on 
Chicago.  The  Governor  of  Illinois  refused  to  sum- 
mon the  State  militia  to  protect  the  railways,  and 
for  ten  days  the  country's  interior  trade  seemed  to 
be  wholly  at  the  mercy  of  two  or  three  labor-union 
leaders,  who  opened  formal  headquarters  in  Chicago 
and  issued  proclamations  with  the  assurance  of  mili- 
tary conquerors.  Not  until  the  Federal  Government 
intervened  with  a  body  of  regular  infantry  to  protect 
the  mails  of  the  United  States,  and  thus  provided 
security  for  the  moving  trains,  was  it  clear  that 
anarchy  could  be  averted. 

Sometimes  commercial  and  industrial  distress,  in 
a  country  of  widely  diversified  resources,  is  mitigated 
by  a  fortunate  harvest  season.  But  1894  was  also  a 
year  of  agricultural  disaster.  A  considerable  section 
of  the  United  States  gets  its  living  from  the  annual 
corn  harvest.  So  large  is  the  aggregate  market 
value  of  this  crop,  which  has  no  competition  of  con- 
sequence elsewhere  in  the  world,  that  even  in  the 


f894]       Severe  Agricultural  Depression        2  3  t 

famous  "  wheat  year,"  1891,  the  total  estimated 
value  of  the  country's  corn  product  was  half  as  large 
again  as  the  value  of  its  wheat.'  As  late  in  1894  as 
the  middle  of  July,  prospects  for  corn  were  notably 
favorable ;  the  Department  of  Agriculture  then  esti- 
mated the  condition  of  the  growing  crop  as  better 
than  that  of  either  1892  or  1893.*  A  week  or  two 
later  one  of  those  scorching  siroccos,  which  at  inter- 
vals devastate  the  plains  of  the  farming  West,  swept 
over  the  Missouri  Valley.  It  was  long-continued; 
when  rain  came  at  last,  the  corn  crop  of  Iowa,  Kan- 
sas, and  Nebraska  was  ruined.  In  1893  these  three 
States  had  produced  548,0(X),ooo  bushels;  in  1894, 
their  combined  yield  was  only  137,000,000.* 

There  still  remained  to  the  farmers  their  crop  of 
wheat,  and  the  wheat  yield  of  1894  was  with  three 
or  four  exceptions  the  largest  in  the  country's 
history.  But  as  if  in  a  mockery  of  nature,  the  fail- 
ure of  the  crop  which  commanded  its  own  market 
was  followed  by  a  ruinous  competitive  market  for  the 
crop  whose  yield  was  ample.  On  top  of  the  abun- 
dant supplies  left  over  from  the  rich  harvest  of  the 
year  before,  Europe  increased  its  wheat  production 
in  1894  by  thirty  million  bushels.  The  whole  world's 
product,  outside  of  the  United  States,  rose  160,- 
000,000  bushels  over  even  1892.*  No  crop  ap- 
proaching this  in  magnitude  has  been  raised  by  the 

'  U.  S.  Department  of  Agriculture,  Annual  Rep.  y  1891. 

•  Bulletin  of  July  10,  1894. 

•  Annual  Reports,  U.  S.  Department  of  Agriculture,  1893  and 
1894. 

•  Beerbohm's  Com-  Trade  List ;  Liverpool  Corn-  Trade  News,  1894. 


222  American  Finance  \\^9A 

agricultural  world  before  or  since.  With  such  com- 
petition, and  with  a  slow  domestic  market  for  any 
merchandise,  wheat  sold  on  the  farm  in  1894  at  an 
average  price  only  a  trifle  over  forty-nine  cents  a 
bushel ;  by  far  the  lowest  figure  ever  touched,  before 
or  since.' 

It  was  in  the  face  of  this  series  of  industrial  calam- 
ities, with  trade  prostrated,  credit  shaken,  agricul- 
ture depressed,  and  labor  in  open  revolt,  that  the 
Administration  was  called  on  to  redeem  its  promise 
and  reform  the  tariff.  Action  in  this  regard  could 
not  possibly  be  avoided ;  first,  because  the  party  and 
Administration  were  absolutely  pledged  to  it,  but 
second,  because  the  existing  revenue  law  had  proved 
its  inability,  under  prevailing  trade  conditions,  to 
meet  the  expenses  of  Government.  If  Mr,  Harri- 
son had  been  elected  in  1892,  his  Administration 
would  equally  have  been  forced  to  take  the  revenue 
laws  in  hand.  Of  this  there  cannot  be  the  slightest 
reasonable  doubt.  Mr.  Sherman,  it  is  true,  has  gone 
so  far  as  to  declare,  in  a  published  review  of  the 
situation,  not  only  that  the  Government's  financial 
ills  were  primarily  due  to  deficit  in  revenue,  but 
that  no  such  deficiency  would  have  occurred  "  had 
not  the  President  and  both  Houses  of  the  Fifty-third 
Congress,  then  in  political  sympathy,  united  in  pass- 
ing a  law  reducing  the  revenue  below  expenditures 
for  the  first  time  since  the  close  of  the  war."  *  But 
the  reader  is  able  now  to  judge  the  historical  reckless- 
ness of  this  assertion.     The  tariff  act  of  the  new 

^  Annual  Reports,  U.  S.  Department  of  Agriculture. 
•  Forum  for  April,  1896. 


1894]  Tariff  Legislation  Begun  223 

Administration  was  not  even  introduced  in  Congress 
until  December  19,  1893,  whereas  the  revenue  deficit 
had  been  continuous  in  every  quarter  since  Septem- 
ber, 1892,  and  had  amounted  in  the  five  months 
ending  with  November,  1893,  to  nearly  thirty  million 
dollars.'  ^ 

The  further  argument  that  revision  of  the  import 
tariffs  in  1894  ought  to  have  been  gradually  and 
cautiously  undertaken,  so  as  to  make  absolutely 
sure  of  sufficient  revenue  while  unsettling  business 
plans  as  little  as  possible,  is  more  honest  and  legiti- 
mate. I  have  already  noticed  the  bad  effects  of  the 
American  practice  of  tariff  reconstruction  by  whole- 
sale, and  there  was  probably  never  a  year  when  such 
effects  ought  to  have  been  more  scrupulously  avoided 
than  in  1894.  But  politically  speaking,  revision  of 
the  taxes,  conservatively  and  by  piecemeal,  was 
impracticable.  General  reduction  of  the  import 
schedules  was  the  solitary  bond  which  still  united 
the  Administration  party;  with  this  removed,  the 
Congressional  majority  would  simply  have  resolved 
itself  into  its  original  elements.  Furthermore,  it 
was  easily  possible  to  procure  an  increased  revenue 
through  reduction  of  the  duties.  This  must  be 
manifest  to  any  one  who  considers  the  nature  of  the 
two  opposing  tariff  theories.  Wholly  aside  from 
the  general  merits  of  the  protective  theory,  its  pur- 
pose is  exclusion  of  competing  foreign  goods.  So 
far,  then,  as  it  achieves  its  purpose,  a  law  of  this 
character  necessarily  removes  a  possible  source  of 
income. 

*  Trtat.  Rtp.,  1893,  p.  Ixtx. 


224  American  Finance  [i894 

But  to  say  that  lower  duties  may  be  made  a  more 
remunerative  source  of  revenue  is  not  to  say  that 
any  reduction  will  accomplish  that  result.  Nothing 
had  been  more  conclusively  demonstrated,  in  the 
Government's  recent  history,  than  the  danger 
to  the  public  revenue  if  economic  theories  were 
alone  allowed  to  govern  the  preparation  of  a  law. 
The  McKinley  Act  itself  was  an  index  to  this  dan- 
ger, and  there  is  little  excuse  for  the  absolute  in- 
difference of  the  Congress  of  1894  to  the  warning. 
The  truth  appeared  to  be,  however,  that  in  1894, 
as  in  1890,  an  optimism  which  amounted  to  infatu- 
ation had  seized  on  the  public  leaders  of  the  major- 
ity. Mr.  Carlisle  remarked,  it  is  true,  in  his  report 
of  December,  1893,  that  the  extent  to  which  "  im- 
portations will  be  increased  solely  on  account  of 
reductions  in  the  rates  of  duty,  it  is  of  course  im- 
possible to  foresee."  *  This  judgment  ought  to 
have  foreshadowed  cautious  adjustment  of  the 
schedules.  But  the  Secretary  himself  went  on  to  say 
that  conditions  will  be  much  more  favorable  here- 
after for  the  collection  of  an  adequate  revenue  "  * — 
a  prediction  wholly  unwarranted,  either  by  the  state 
of  general  industry,  which  was  paralyzed,  or  by  the 
movement  of  import  trade,  which  was  then  decreas- 
ing twenty  to  thirty  per  cent,  from  the  preceding 
year. 

When  this  prediction  was  made  by  the  Secretary^ 
in  December,  1893,  it  had  at  least  the  excuse  of 
echoing  the  hopes  of  the  financial  markets.  But 
Congress,  before  it  passed  its  revenue  law,  had  six 

'  Treas.  Rep.,  1893,  p.  Ixxxii.  »  Ibid.^  p.  Ixix. 


18941  Conflict  of  House  and  Senate  225 

months  more  in  which  to  observe  the  growing  trade 
demoralization,  and  in  July  it  was  no  longer  possible 
for  a  reasonable  man  to  cherish  the  hopes  which  had 
been  current  in  December.  In  fact,  the  legislators 
had  already  seen  one  of  Mr.  Carlisle's  predictions, 
for  the  revenue  of  the  first  six  months  of  1894,  turn 
out  an  overestimate  by  the  enormous  sum  of  forty 
million  dollars.'  Nevertheless,  they  constructed 
their  own  optimistic  estimates  on  the  basis  of  the 
trade  of  1891  and  1892.  But  in  truth,  the  estimates 
of  revenue  played  as  small  a  part  in  the  season's 
tariff  legislation  as  they  had  played  in  that  of  1890. 
It  was  evident  very  soon,  in  the  course  of  the  de- 
bate, that  the  two  Houses  of  Congress  were  guided 
by  different  and  conflicting  motives  in  their  action 
on  the  Wilson  Tariff  Bill,  and  that  neither  House 
was  giving  any  scientific  attention  to  the  question  of. 
sufficient  revenue.  The  House  majority  was  plan- 
ning a  law  to  remit  taxation;  those  who  held  the 
balance  of  power  in  the  Senate  were  secretly  con- 
triving to  retain  as  much  protection  as  they  dared. 
Between  the  two,  the  urgent  question  of  a  deficit 
had  little  hearing. 

The  House  not  only  struck  off  the  import  taxes 
on  coal,  iron  ore,  and  wool,  which  were  exclusively 
protective  duties,  and  therefore  logical  subjects  for 
revision,  but  it  refused  to  restore  the  sugar  duties, 
which  were  a  revenue  tax  of  the  most  productive 
character.  The  Senate  replaced  a  duty  of  forty 
cents  per  ton  on  coal  and  iron,  which  was  an  utterly 

'  Treas.  /iep.,.iSg3,  p.  Ixix.  ;  1894,  p.  xxv.  ;  Secretary  Carlisle, 
letter  to  Senator  Voorhees,  January  13,  1894. 
1$ 


226  American  Finance  [i894 

insignificant  source  of  revenue,  but  it  restored 
only  such  part  of  the  sugar  duties  as  should  play 
directly  into  the  hands  of  the  refining  companies. 
Considered  merely  as  a  law  contrived  to  produce 
sufficient  revenue,  the  Senate  bill  was  undoubt- 
edly superior  to  the  House  bill.  The  Senate 
sugar  tariff,  it  is  true,  produced  eventually  hardly 
one  half  as  much  revenue  as  had  been  yielded  by 
the  sugar  tariff  of  1883,*  but  there  was  nevertheless 
collected  from  this  source,  in  the  first  full  year  under 
the  amended  Wilson  Act,  the  sum  of  $29,800,000, 
none  of  which  revenue  would  have  been  obtained 
by  the  Government  under  the  House  bill's  free-sugar 
provisions.'  But  the  public  refused  for  very  obvious 
reasons  to  give  the  framers  of  the  Senate  amend- 
ments any  credit  for  this  achievement.  On  the  eve 
of  the  passage  of  the  Wilson  Bill  in  the  Upper 
House  it  was  discovered  that  several  senators,  whose 
votes  controlled  action  on  the  sugar  duties,  were 
speculating  on  Wall  Street  in  the  stock  of  the  refin- 
ing company  chiefly  interested.  The  angry  public 
clamor  over  these  disclosures  was  followed  by  an 
open  letter  from  President  Cleveland  to  his  sup- 
porters in  the  House,  declaring  the  senatorial  changes 
to  be  "  outrageous  discriminations  and  violations  of 
principle  "  * — an  assertion  which,  in  view  of  the  plat- 
form of  the  majority,  was  certainly  not  unwarranted. 
From  the  floor  of  the  Senate,  the  ringleaders  of  the 
protectionist    compromise    retorted    publicly    with 

"  U.  S.  Statistical  Abstract,  1896,  p.  385.  »  Ilnd. 

*  Letter  to  W.  L.  Wilson,  July  a,  1894 ;  Congressional  Record 
July  19,  1894. 


18941  Income-Tax  Law  Annulled  227 

much  show  of  indignation.*  When,  finally,  after  a 
long  and  stubborn  struggle,  the  Senate  tariff  pre- 
vailed and  passed  both  Houses,  the  President  con- 
temptuously refused  to  put  his  name  to  it,  and  left 
the  emasculated  bill  to  become  a  law  without  his 
signature. 

The  result  of  this  haphazard  reckoning  on  the 
revenue  was  a  law  which  never  produced  a  surplus. 
Even  with  its  sugar  import  tax,  the  yield  of  the 
Senate  bill,  in  the  succeeding  year,  fell  short  of  the 
estimate  of  its  authors  by  no  less  a  sum  than  eighty- 
seven  million  dollars.  *  It  never  brought  the  revenues 
to  the  low  ebb  of  the  fiscal  year  1894,  before  the 
Wilson  Bill  was  passed,  but  it  produced  a  deficit  of 
$42,805,223  in  the  fiscal  year  1895,  and  of  $25,203,- 
245  in  1896.*  For  this  exceedingly  ill-timed  miscal- 
culation, the  Forty-third  Congress  is  properly  held 
responsible.  It  is  true  that  both  Houses  had  added 
to  the  bill  a  tax  of  two  per  cent,  on  incomes  over 
$4000,  and  in  a  comfortably  indefinite  way  had 
reckoned  that  the  product  of  this  tax  would  make 
good  whatever  deficiencies  might  arise  from  other 
schedules.  The  income-tax  provision  did  not  stand 
the  test  of  examination  by  the  United  States 
Supreme  Court,  and  no  public  revenue  was  ever 
derived  from  it.  "  Representatives  and  direct 
taxes,"  provides  the  Federal  Constitution,  "  shall 
be  apportioned  among  the  several  States  which  may 

'  A.  P.  Gorman,  Senate  speech,  July  23,  1894. 
*  Senate   Finance  Committee's  Report^  June   19,   1894 ;    Treat* 
Rep.,  1895,  p.  xix. 
>  Treat .  Rep.,  1896,  p.  5. 


228  American  Finance  U894 

be  included  within  this  Union,  according  to  their 
respective  numbers,"  '  and  it  further  and  still  more 
explicitly  declares  that  "  no  capitation  or  other 
direct  tax  shall  be  laid,  unless  in  proportion  to  the 
census  or  enumeration  hereinbefore  directed  to  be 
taken."  '  The  question  then  presented  was.  Is  the 
income  tax  a  direct  tax  within  the  meaning  of  the 
Constitution  ?  If  so,  the  fact  that  it  was  not  ap- 
portioned by  the  Act  of  1894  to  the  several  States 
according  to  population,  but  was  levied  solely  on 
citizens  enjoying  more  than  the  stipulated  $4000, 
and  was  levied,  moreover,  in  proportion  to  their  in- 
come, must  be  fatal  to  the  law. 

On  April  8,  1895,  the  Court  ruled  that  taxes  on  real 
estate,  or  on  rents  derived  from  real  estate,  were  direct 
iaxes,  and  it  therefore  annulled  the  law  so  far  as  in- 
comes of  this  nature  were  affected.*  At  the  same 
time,  it  pronounced  unconstitutional  the  levy  of  Fed- 
eral taxation  on  incomes  derived  from  municipal 
securities,  the  Court's  theory  being  that  such  a  tax 
was  a  tax  upon  the  borrowing  power  of  a  State  or  its 
instrumentality,  and  hence  repugnant  to  the  Consti- 
tution.* On  the  broader  question  whether  the  whole 
Act  imposing  an  income  tax  was  void  for  want  of 
uniformity,  the  Court  divided  equally  in  April.  It 
heard  argument  on  the  case  again  in  May,  1895, 
and  on  the  20th  of  that  month  at  length  decided 
that  a  tax  upon  a  citizen's  whole  income  was  a  tax 
upon  the  property  whence  such  income  was  derived ; 
that,  as  a  tax  on  property,  it  was  a  direct  tax  within 

•  Article  i,  section  2.  '  Article  i,  section  9. 

•  39  U.  S,  Supreme  Court  Reports,  p.  759,  */W</. 


18941  Tariff  Law  and  Revenue  229 

the  meaning  of  the  Constitution,  and  was  therefore 
void  because  of  its  unequal  distribution.*  This  im- 
portant ruling  was  sustained  by  five  Supreme  Court 
judges  in  a  bench  of  nine,  the  majority  vote  includ- 
ing not  only  the  Chief  Justice,  but  the  oldest  and 
most  experienced  members  of  the  Court — among 
them  Justices  Field  and  Gray.  A  change  by  one 
of  the  younger  members,  Justice  Shiras,  from  a  vote 
in  favor  of  the  law  in  April  to  an  adverse  vote  in 
May  was,  however,  the  deciding  influence  in  deter- 
mining the  Court's  opinion. 

The  annulment  of  this  income-tax  provision,  it 
was  asserted  then  and  afterwards,  prevented  the  Act 
of  1894  from  yielding  a  surplus  revenue.  The  truth, 
however,  is,  that  so  incorrect  were  the  forecasts  of 
the  legislators  that  a  deficit  would  equally  have  oc- 
curred, even  had  the  income  tax  remained  in  force. 
Congressional  estimates  of  its  yield  were  based  on 
the  supposition,  unwarranted  by  all  experience  in 
taxation,  that  an  income  tax  could  be  collected 
exactly  as  imposed.  The  delusive  character  of  such 
expectations  had  been  shown  to  the  legislators  long 
before  they  passed  the  Wilson  Bill.  The  chief  of 
the  Government's  statistical  bureau  had  reported  in 
April,  as  a  result  of  careful  investigation,  that  "  the 
possible  revenue  under  that  income  tax  would  range 
from  $12,000,000  at  the  lowest  rate  to  $39,000,000 
at  the  highest,"  and  the  lower  average  was  predicted 
for  the  early  operation  of  the  law.*     Such  a  result 

'  39  U.  S.  Supreme  Court  Reports,  p.  1108. 

»  W.  C.  Ford,  Chief  of  U.  S.  Bureau  of  Statistics ;  letter  to  Sen- 
ator Hill,  April  3,  1894. 


230  American  Finance  [1894 

would  have  ensured  a  deficit  only  slightly  less  than 
those  of  1895  and  1896. 

In  short,  the  Treasury  had  obtained  little  more  real 
relief  from  its  appeal  for  revenue  legislation  than 
from  its  appeal  for  authority  to  issue  bonds.  For  a 
single  month  there  was  a  surplus  revenue,  wholly 
due  to  .payment  of  whiskey  taxes  in  advance  of  the 
imposition  of  the  increased  internal  schedules  ' ;  but 
by  October,  1894,  the  monthly  deficit  had  risen  to 
thirteen  million  dollars,  the  largest  of  the  year. 
Even  when  it  had  become  evident  that  the  new 
revenue  act  would  not  remove  the  deficit.  Congress 
did  nothing  to  help  the  Treasury.  Its  single  proffer 
of  relief,  during  the  entire  session,  was  a  bill  direct- 
ing the  Treasury  to  coin  and  use  the  fifty-five  millions 
"  seigniorage"  theoretically  acquired  by  the  Gov- 
ernment in  buying  silver  at  the  market  price  and 
paying  it  out  in  over-valued  silver  dollars — a  strange 
expedient  in  the  face  of  a  drain  of  gold  forced  by  an 
already  redundant  circulation,  and  properly  vetoed 
on  that  ground  by  the  President.*  This  bill  was 
urged  on  the  usual  ground  that  the  country  was 
suffering  for  lack  of  circulating  medium,  whereas 
the  money  supply,  as  we  saw  in  the  preceding  chap- 
ter, had  been  increasing  more  rapidly  than  in  any 
previous  period  of  our  history.  Never  had  the 
American  money  supply  approached  the  volume 
shown  in  the  Treasury  estimates  of  February,  1894. 
The  absurdity  of  the  complaint  of  an  insufficient 

'  Classified  Treasury  statement  of  receipts  and  expenditures  foi 
August,  1894. 
*  President  Cleveland,  veto  message  of  March  29,  1894. 


18941  The  Endless  Chain  231 

currency  was  forcibly  displayed  in  the  autumn  of 
1894,  when  the  Treasury  deficit  once  more  threw 
into  the  money  markets  twenty-five  millions  of  the 
public  surplus,'  and  when,  as  a  consequence,  the 
outward  movement  of  gold  again  grew  heavy.  On 
August  7th  redemption  of  legal-tender  notes  for  ex- 
port gold  had  reduced  the  Treasury's  gold  reserve 
to  $52,189,500,*  or  less  even  than  its  minimum 
before  the  February  loan. 

Another  appeal  was  made  to  the  New  York  banks 
to  exchange  their  gold  for  the  legal  tenders  in  the 
Treasury,  and  again  the  banks  thus  surrendered 
some  fifteen  millions  gold.*  But  this  was  little 
help ;  it  could  not  affect  the  gold-expulsion  move- 
ment. Having  borrowed  on  its  surplus  notes  all  of 
the  gold  obtainable,  the  Treasury  again  undertook 
in  November  to  borrow  on  its  bonds.  The  experi- 
ence of  January  was  repeated;  a  banking"  syndi- 
cate "  was  hurriedly  forced  together.  Half  the 
subscription  gold  was  again  obtained  from  the 
Treasury  through  redemption  of  legal  tenders — not 
immediately,  for  the  large  subscribers  had  tacitly 
agreed  to  obtain  their  gold  from  other  sources,  but 
afterwards,  when  subscribers  who  had  quietly  bor- 
rowed the  necessary  gold  from  other  banks  on  thirty- 
day  gold  notes  repaid  such  obligations  at  maturity 
through  Treasury  redemptions.  In  its  original  pur- 
pose, then,  the  loan  was  again  a  failure ;  the  more 
immediately  so  in  that  the  sight  of  a  suddenly 
crumbling  gold  reserve,  at  a  time  when  the  Treasury 

'  Trtas.  Rtp.,  1896,  pp.  55,  125.  1 


232  American  Finance  [i894 

was  believed  to  be  at  last  protected,  awoke  the 
wildest  dismay  in  the  home  and  foreign  investment 
community.  "  We  have,"  the  President  remarked 
to  Congress  on  the  completion  of  the  loan,  "  an 
endless  chain  in  operation,  constantly  depleting  the 
Treasury's  gold,  and  never  near  a  final  rest."  ' 

The  home  and  foreign  markets  were  in  fact 
forced  to  the  belief,  at  the  close  of  1894,  that  pres- 
ervation of  the  gold  standard  and  of  the  public 
credit  was  no  longer  possible.  It  certainly  had  be- 
come impossible  through  the  whipping  into  line  of 
reluctant  city  banks.  The  first  loan  of  1894  had 
failed  of  its  purpose  within  ten  months;  the  second 
had  failed  within  ten  weeks,  and,  outside  the  loan 
market,  no  recourse  was  left  to  the  Government. 
Such  was  the  panicky  rush  of  home  and  foreign 
capital  to  escape  before  the  anticipated  crash,  that 
sterling  rates  advanced  even  above  the  normal 
specie-export  point.  In  January,  1895,  $25,900,000 
gold  went  out  on  export,  and  the  enormous  sum  of 
$45,000,000  was  withdrawn  from  the  Treasury  in 
redemption  of  legal  tenders.'  The  gold  reserve  had 
risen  to  $111,000,000  after  the  payments  on  the 
December  loan  of  1894;  by  February,  1895,  it  had 
fallen  to  $41,340,181,  and  it  was  falling  at  the  rate 
of  nearly  two  million  dollars  daily.  In  the  first 
week  of  February,  a  telegram  came  to  the  Secretary 
from  the  Assistant  Treasurer  at  New  York,  warning 
him  that  the  New  York  office  could  hardly  continue 
redemption  of  legal  tenders   more   than   one  day 

'  Annual  Message,  December  3,  1894. 
•  Treat.  Rep.,  1896,  p.  131. 


1999]  Collapse  of  the  Gold  Reserve  233 

longer.'  The  crisis  predicted  in  1880  by  Secretary 
Sherman  and  in  1884  by  Secretary  McCulloch,  and 
foreshadowed  with  increasing  distinctness  ever  since 
the  enactment  of  the  Law  of  1890,  was  now  so 
plainly  imminent  that  the  business  community 
anticipated  nothing  else  than  suspension  of  gold 
payments. 

Such  was  the  situation  in  the  closing  week  of 
January,  1895.  Merchants  and  bankers  now  busied 
themselves  putting  their  houses  in  order  against  the 
expected  surrender  of  the  Treasury.  The  falling 
markets  during  the  first  three  days  of  that  week, 
ihe  half-suppressed  excitement  in  business  circles, 
and  the  discussion  which  began  over  the  probable 
nature  and  immediate  results  of  a  lapse  into  de- 
preciated currency,  reflected  the  common  feeling 
that  a  few  days,  and  possibly  a  few  hours,  would 
settle  the  question  finally.  On  Thursday,  January 
31st,  a  sudden  change  occurred.  The  markets 
rose  rapidly,  foreign  exchange  declined,  gold-ex- 
port engagements  were  cancelled,  and  the  rumor 
ran  through  all  business  centres  that  the  President 
had  met  the  emergency.  . 

•  Assistant-Secretary  Curtis,  Associated  Press  interview  of  Feb- 
«uary  25,  1895. 


CHAPTER   X 

THE   BOND-SYNDICATE   OPERATION 

THE  action  taken  by  the  Administration,  in  the 
Treasury  crisis  of  1895,  involved  one  of  the 
most  remarkable  experiments  in  the  history  of 
finance.  It  was  the  Treasury's  double  problem  now 
to  restore  the  gold  reserve  and  to  prevent  the  im- 
mediate withdrawal  of  the  specie  thus  obtained,  and 
this  could  not  be  done  through  another  bond  sale 
similar  to  that  of  December,  1894.  It  could  not  be 
done  directly  through  the  banks  at  all.  There  re- 
mained the  large  international  banking  houses  which 
are  commonly  employed  as  agents  for  important 
Government  operations  in  the  money  market,  and 
which  had  been  employed  by  Mr.  Sherman  in  the 
resumption  operations  of  1878  and  1879. 

What  terms  could  have  been  made  with  these  in- 
ternational interests,  had  they  been  approached  in 
1893  or  1894,  is  a  matter  of  conjecture.  Their 
terms  as  now  submitted,  in  the  crisis  of  January, 
1895,  were  extremely  harsh;  they  measured  with 
little  mercy  the  emergency  of  the  Treasury.  They 
unfolded  what  they  believed  to  be  a  practicable  plan 

234 


18951        The  Belmont-Morgan  Contract        235 

for  both  restoring  and  maintaining  the  Treasury 
reserve,  but  they  made  the  consideration  for  their 
services  the  allotment  of  a  thirty-year  four  per  cent, 
bond  at  a  price  equivalent  to  104^,  when  the  existing 
United  States  four  per  cents,  with  less  than  half  as 
long  to  run,  were  bringing  1 1 1  on  the  market.'  This 
was  asking  a  heavy  concession;  no  such  demand 
has  been  made  by  any  Government-bond  syndicate 
during  the  present  generation.  On  the  other  hand, 
the  foreign  bankers  ofifered  to  bind  themselves, 
under  conditions  which  we  shall  presently  examine, 
to  guarantee  the  maintenance  of  the  Treasury  gold 
reserve,  and  they  submitted  one  rather  important 
counter-proposition.  The  four  per  cents,  sold  at  the 
stipulated  price  of  104^,  were  equivalent  to  a  3|  per 
cent,  bond  at  par,'  whereas  the  loans  of  1894  had  sold 
on  a  par  basis  of  three  per  cent. ;  but  the  alternative 
proposition  of  the  syndicate  was  that  they  would 
pay  par  for  a  three  per  cent,  bond,  provided  pay- 
ment should  be  expressly  stipulated  in  gold.  This 
was,  on  the  whole,  a  safe  proposition  for  the  bankers 
to  make,  because  express  provision  for  gold  payment 
could  not  be  inserted  without  an  act  of  Congress, 
and  there  was  not  the  slightest  likelihood  that  any 
such  act  could  pass.  A  bill  with  that  provision  was 
in  fact  introduced  in  the  House  of  Representatives 
in  February,  and  was  immediately  defeated  by  a 
vote  of  167  to  120.  This  vote  was  taken  February 
7th ;  on  February  8th  the  Secretary  of  the  Treasury 

'  Muhleman,  Monetary  Systems,  appendix,  pp.  224,  325 ;  New 
York  Financial  Chronicle,  February  9,  1895,  p.  236. 


236  American  Finance  [1895 

signed  a  contract  on  the  syndicate's  own  terms  with 
Messrs.  J.  P.  Morgan  &  Co.  and  Messrs.  August 
Belmont  &  Co.,  the  second  of  these  firms  represent- 
ing the  powerful  foreign  house  of  Rothschild.  The 
bonds  thus  sold  amounted  to  $62,315,400,  and  they 
brought  $65,116,244. 

The  wild  clamor  which  instantly  broke  out  at 
Washington  seemed  actually  for  the  time  to  stun  the 
Administration  party.  It  was  echoed  in  the  oppo- 
sition press;  nor,  indeed,  did  the  Administration's 
supporters  throughout  the  country  show,  as  a  rule, 
anything  but  bewilderment.  In  the  storm  of  angry 
denunciation,  perhaps  the  only  unmoved  figure  was 
the  President ;  who,  having  chosen  his  position,  held 
to  it  with  characteristic  resolution.  In  his  special 
message  to  Congress,  February  8th,  Mr.  Cleveland 
wrote  that  in  his  judgment  the  transaction  "  promises 
better  results  than  the  efforts  previously  made  in  the 
direction  of  effectively  adding  to  our  gold  reserve." 
Ten  months  later,  in  his  Annual  Message  of  Decem- 
ber 2d,  he  declared  that  he  had  "  never  had  the 
slightest  misgiving  concerning  the  wisdom  or  pro- 
priety of  this  arrangement,"  and  that,  individually, 
he  was  "  quite  willing  to  answer  for  his  full  share  of 
its  promotion."  Let  us  now  see  what  happened 
between  the  dates  of  these  two  declarations. 

The  two  considerations  in  the  contract  with  the 
syndicate,  which  had  not  appeared  in  any  previous 
bond  sale,  were  contained  in  the  following  provisions : 
"  At  least  one  half  of  all  coin  deliverable  hereunder 
shall  be  obtained  in  and  shipped  from  Europe, ' '  and 
"  the  parties  of  the  second  part,  and  their  associates 


18981  The  Syndicates  Problem  237 

hereunder,  ...  as  far  as  lies  in  their  power, 
will  exert  all  financial  influence  and  will  make  all 
legitimate  efforts  to  protect  the  Treasury  of  the 
United  States  against  the  withdrawal  of  gold  pend- 
ing the  complete  performance  of  this  contract." 
Since  it  was  also  stipulated  that  deliveries  of  gold 
from  Europe  "  shall  not  be  required  to  exceed  300,- 
000  ounces  per  month,"  and  since  1,750,000  ounces 
in  all  were  to  be  imported  in  order  to  fulfil  the  con- 
tract, it  followed  that  this  engagement  in  the  Treas- 
ury's behalf  would  hold  good  during  about  six 
months. 

Now  there  had  been  only  two  important  sources 
of  gold  withdrawal  from  the  Treasury :  gold-export- 
ers who  were  unable  in  any  other  way  to  meet  their 
obligations  on  an  advancing  foreign  exchange 
market,  and  subscribers  to  the  bond-issues  who 
converted  their  notes  into  coin  to  make  their  pay- 
ments. There  had  been  practically  no  withdrawal 
for  simple  hoarding  purposes ;  in  his  intimation  to 
this  effect,  in  his  report  of  1894,  Secretary  Carlisle 
was  mistaken.'  The  syndicate's  engagement,  then, 
was  first  a  pledge  to  obtain  all  gold  for  their  sub- 
scription elsewhere  than  at  the  Treasury,  and  second, 
it  was  a  promise  to  stop,  if  humanly  possible,  the 
redemption  of  notes  for  export  gold.  The  first  of 
these  pledges  was  simple  enough;  the  second  in- 
volved extraordinary  difficulties. 

We  have  seen  in  another  chapter  that  withdrawal 
of  Treasury  gold  for  export  purposes  had  become  a 
measure  of  necessity,  because  the  sterling  bankers 
'  Treas.  Rep.,  1894,  pp.  Ixix.,  10. 


238  American  Finance  [i89S 

had  in  the  ordinary  course  of  business  contracted 
foreign  obligations  which  they  were  forced  to  meet 
through  gold  remittances,  while  they  could  get  no 
gold  for  the»,  purpose  except  at  the  Treasury's  re- 
demption office.  If,  then,  the  syndicate  was  to 
"  protect  the  Treasury  against  the  withdrawal  of 
gold  "  for  export  purposes,  it  must  do  one  of  two 
things — provide  in  this  country,  at  its  own  expense, 
the  necessary  gold  for  export,  or  provide  a  credit 
fund  in  Europe  which  should  make  gold  remittances 
unnecessary.  The  first  it  certainly  could  not  do  ; 
the  comptroller's  compilation  of  the  previous  De- 
cember had  shown  that  all  the  national  banks  in  the 
country  held  only  $146,000,000  gold,  while  the 
New  York  banks  in  February  held  only  $82,000,000. 
No  banker  or  combination  of  bankers  had  the 
power,  in  case  of  repetition  of  1894's  exchange- 
market  conditions,  to  procure  the  $100,000,000  gold 
which  had  gone  out  that  year  on  export.' 

The  second  expedient  was  possible.  A  banker's 
draft  on  London,  forwarded  to  a  London  creditor, 
must  be  redeemed  in  current  English  funds  at  a  Lon- 
don institution.  If  the  New  York  maker  of  the  draft 
has  shipped  the  necessary  sum  in  gold,  the  draft  will 
be  honored  on  the  arrival  of  the  specie.  But  if  the 
maker  of  the  draft  has  borrowed  the  requisite  sum 
in  London  on  his  individual  credit,  he  possesses 
equally  the  means  of  foreign  settlement.  This  was 
the  principle  on  which  the  syndicate  of  1895  under- 
took to  act.  They  proposed  to  sell  in  New  York 
whatever  drafts  on  London  should  be  needed  by  the 

'  U.  S.  Bureau  of  Statistics ;  foreign-trade  statement  for  Decern- 
ber,  1894. 


1899]      Foreign-Exchange  Houses  Combine    239 

banking  and  mercantile  community,  and  to  meet  the 
drafts  in  London  through  the  use  of  their  own  credit 
on  the  London  money  market. 

The  magnitude  of  this  undertaking  will  readily  be 
perceived.  If  the  demand  for  such  remittances, 
which  had  forced  the  hundred  million  dollars  gold 
exports  of  1894,  were  to  be  repeated,  the  failure  of 
the  experiment  was  inevitable.  No  banker  or  com- 
bination of  bankers  could  borrow  any  such  amount 
on  its  joint  or  individual  credit.  This  well-known 
fact  explains  the  reservation  in  the  contract,  whereby 
the  syndicate  pledged  results  only  "  so  far  as  lies  in 
their  power."  Both  they  and  the  Government, 
however,  took  the  chance.  With  the  double  pur- 
pose of  ensuring  themselves  against  competitive 
sales  of  exchange  and  of  ensuring  the  Treasury 
against  export  -  gold  withdrawals  by  competing 
bankers,  the  syndicate  next  took  the  unprecedented 
step  of  binding  together  in  the  undertaking  every 
banking  house  and  every  bank  in  New  York  City 
with  important  European  connections.  All  of  these 
firms  and  institutions  were  admitted  to  the  syndi- 
cate, part  of  the  new  four  per  cent,  loan  being  dis- 
tributed among  them  at  profitable  rates.  In  return 
for  this  allotment,  they  bound  themselves,  as  the 
Belmont-Morgan  syndicate  had  already  bound  itself, 
to  draw  no  gold  from  the  Treasury  pending  the  exe- 
cution of  the  contract.  It  was  hoped  by  this  means 
to  set  the  Treasury  on  its  feet. 

The  London  critics  instantly  pronounced  the 
undertaking  impossible.*     They  pointed  out,   cor- 

'  London  Economist,  1895,  February  23,  June  15,  July  6,  August 
10. 


240  American  Finance  [1899 

rectly  enough,  that  the  syndicate  proposed  to  dam 
up  a  natural  commercial  movement ;  from  this  they 
reasoned  that  eventually  the  dam  must  overflow, 
and  that  when  this  happened,  the  artificial  obstruc- 
tions erected  by  the  New  York  bankers  would  be 
instantly  swept  away.  We  shall  presently  see  how 
far  this  London  judgment  had  a  solid  basis.  The 
syndicate,  however,  was  working  on  a  different 
theory.  Its  members  were  aware,  of  course,  that  a 
withdrawal  of  foreign  capital  equal  to  that  of  1894 
or  1893,  with  the  consequent  excessive  demand  for 
drafts  on  London,  would  break  down  the  whole 
experiment.  But  suppose  this  demand  for  remit- 
tances to  Europe  were  not  to  be  repeated.  Thft 
mere  fact  that  the  Treasury  and  the  currency  were 
protected  would  remove  one  very  important  cause 
of  the  recent  flight  of  European  capital.  If,  in  ad- 
dition, such  an  agricultural  year  as  1879  o^  ^'^9^  were 
again  to  be  witnessed,  it  would  be  found  that  the 
syndicate  operation  had  merely  equalized  the  whole 
year's  movement  of  exchange.  In  the  spring  they 
would  sell  their  drafts  on  London,  depositing  at 
New  York  in  current  funds  the  proceeds  of  the  sale. 
In  the  autumn  the  possession  of  this  accumulated 
New  York  fund  would  enable  them,  when  London 
needed  remittances  to  New  York,  to  draw  on  their 
New  York  deposits,  sell  the  drafts  to  the  European 
remitter,  and  with  the  proceeds  pay  off  their  London 
debt.  It  was,  perhaps,  a  doubtful  chance,  but  it 
was  worth  the  trying. 

On  the  basis  of  such  contingent  calculations,  this 
remarkable  experiment  began.     During  many  weeks, 


1895]  Trade  Recovery  Begins  241 

the  moves  of  the  syndicate  were  watched  with  seep- 
ticism  in  both  London  and  New  York.  But  the 
operation  went  on  smoothly.  Except  for  some  in. 
significant  West  Indian  consignments,  there  were 
no  gold  exports,  and  gold  withdrawals  from  the 
Treasury  fell  to  an  unimportant  minimum.'  The 
foreign-exchange  market  continued  very  strong ;  in 
fact,  the  ruling  rate  was  higher  even  than  the  aver- 
age of  1894 ;  but  at  these  rates  the  syndicate  supplied 
remitters  with  all  necessary  drafts  on  London,  and 
the  gold  contracted  for  delivery  from  Europe  duly 
arrived  at  the  rate  of  five  million  dollars  monthly. 
From  the  New  York  banks  associated  with  the 
syndicate  had  been  obtained,  within  a  few  weeks 
after  the  signing  of  the  contract,  most  of  the  $37, 
500,000  domestic  gold  pledged  for  delivery  to  the 
Treasury.  On  February  9th,  these  banks  reported 
specie  holdings  of  $82,263,900;  on  April  6th,  they 
held  $64,471,200.  They  made  no  effort  to  recoup 
themselves  through  note  redemption  at  the  Treas- 
ury ;  a  fact  which  at  least  suggests  the  possibility 
that  skilful  negotiation  might  have  achieved  the 
same  result  in  1894.  On  June  25th,  the  hundred- 
million  Treasury  reserve  was  again  intact ;  on  July 
8th,  it  reached  $107,571,230. 

Long  before  July,  the  syndicate's  expectations 
had  apparently  been  fulfilled  by  a  decidedly  favor- 
able turn  in  all  the  markets,  and  by  a  complete  re- 
versal of  attitude  by  European  investors.  In  these 
regards,  the  events  of  1895  were  among  the  most 
remarkaole  in  our  history.     It  must  be  remembered 

•  Treas.  Rep.,  1895,  p.  7. 


242  American  Finance  [isM 

that  the  industrial  paralysis  of  1894  had  alike  affected 
import  trade  and  home  production;  both  had  fallen 
to  the  lowest  level  in  many  years.  It  resulted  that 
surplus  stocks  of  merchandise  were  abnormally  small. 
A  sudden  demand  would  exhaust  them  very  quickly, 
and  such  a  demand  began  almost  within  a  month  of 
the  February  bond  negotiation.  The  buying  power 
doubtless  came  in  some  degree  from  actual  con- 
sumers; but  it  was  chiefly  speculative,  originating 
in  the  growing  belief  that  with  the  Government's 
finances  out  of  danger,  healthy  industrial  conditions 
would  return.  During  this  season,  the  commercial 
markets  presented  for  a  time  a  spectacle  almost 
equal  to  that  of  1879.  Hardly  an  article  of  domes- 
tic produce  or  manufacture  failed  to  rise  in  response 
to  this  increased  demand. 

The  iron  market  led  the  movement.  From  a 
weekly  record  of  157,000  tons  in  February,  the 
country's  iron  production  rose  by  November  to  217,- 
000  tons  per  week,  the  largest  in  the  country's 
history,  and  in  spite  of  this  heavy  increase  in  the 
output,  the  stock  of  iron  on  hand  for  sale  had  been 
decreased  through  urgent  purchases  nearly  half  a 
million  tons.'  The  price  of  iron,  meantime,  had 
risen  two  to  three  dollars  per  ton.  Along  with  this 
advance  in  iron  came  rapid  recoveries  in  the  grain 
markets;  in  cotton,  provisions,  oil;  and  notably  in 
print  cloths,  the  staple  of  the  dry-goods  market, 
whose  price  rose  twenty-five  per  cent,  between  Feb- 
ruary and  November.  While  these  advances  in 
commercial  prices  were  in  their  beginning,  during 
'  New  York  Iron  Age,  November  14,  1895, 


1895]         Return  of  European  Capital  245 

the  early  spring,  the  market  for  securities  moved  up 
slowly  and  suspiciously,  foreign  scepticism  over  the 
bond  operation  still  finding  voice  in  speculative 
sales  which  offset  the  timid  investment  purchases 
at  home.  In  May,  however,  came  a  sudden  change. 
The  month  began  with  large  purchases  of  new 
American  securities  by  London  banking  houses. 
Bonds  issued  by  several  important  railways,  for  im- 
provement purposes,  found  a  ready  sale  abroad,  and 
brought  unexpectedly  good  prices.  This  was  ap- 
parently the  only  stimulus  needed  for  real  recovery 
of  confidence.  Almost  simultaneously,  a  buying 
movement  in  "  Americans"  began  on  all  the  im- 
portant European  markets. 

This  sudden  and  enormously  heavy  foreign  buying 
was  in  part  explainable  by  the  condition  of  the 
/oreign  investment  markets.  Since  the  Baring  col- 
lapse of  1890,  English  capital  had  been  timid  and  its 
investment  and  speculative  ventures  few.  Against 
;^ 1 89,436,000  new  security  issues  taken  by  London 
investors  during  1889,  only  ;^ 49, 141,000  had  been 
floated  in  1893.'  But  now  an  important  change  was 
taking  place.  In  1885,  gold  had  been  discovered 
in  the  Kaffir  country  of  South  Africa;  two  years 
later,  the  gold  production  of  that  country  had  be- 
come considerable,  and  London  capital  began  to 
seek  investment  in  the  Transvaal;  by  1892,  the 
annual  output  of  the  mines  on  the  Witwatersrandt 
alone  exceeded  twenty  million  dollars.*  Towards 
the  middle  of  1894,  the  incorporation  of  joint-stock 

*  London  Economist,  January  5,  1895. 

•  U.  S.  Mint  Rtf0rt,  1892,  pp.  63,  65. 


244  American  Finance  [1699 

mining  companies  in  London,  enormously  capital- 
ized, was  undertaken  with  unusual  activity.  The 
Rhodeses  and  Barnatos  of  the  African  domain 
began  to  cut  an  important  figure  on  the  London 
and  Continental  markets;  with  the  opening  of  1895, 
an  old-fashioned  popular  craze  of  speculation  broke 
forth  throughout  England. 

It  chanced,  by  one  of  those  odd  coincidences  of 
which  financial  history  is  full,  that  this  fever  of 
speculation  reached  its  height  at  the  very  moment 
when  the  United  States  Government-bond  syndicate 
had  apparently  solved  the  problem  of  the  Treasury. 
The  sudden  reversal  in  the  American  situation,  and 
in  particular  the  rise  in  prices  on  the  commercial 
markets,  offered  at  once  a  fresh  field  of  activity  for 
the  excited  London  adventurers,  and  they  started  in 
suddenly  to  buy  American  securities.  During  two 
weeks  of  May,  1895,  this  foreign  buying  was  so 
heavy  on  our  own  exchanges  that  every  outbound 
European  steamer  carried  a  mass  of  American  stocks 
and  bonds  consigned  to  European  houses.  Sterling 
exchange  broke  from  the  high  level  of  $4.89,  a 
figure  which  it  had  maintained  ever  since  the  Febru- 
ary contract,  and  which  would  ordinarily  compel 
gold  exports,  to  $4.86|,  or  par,  touched  in  the 
second  week  of  May.  The  syndicate  bankers  were 
already  selling  in  London  drafts  on  their  New  York 
deposit  fund,  and  paying  off  their  London  money- 
market  obligations. 

So  far  the  experiment  appeared  to  be  assured  of 
complete  success.  Whether,  in  the  event  of  a  par- 
ticularly large  and  profitable   merchandise-export 


1895]     Outbreak  of  American  Speculation     245 

market  in  the  autumn,  the  syndicate  could  have 
achieved  all  of  its  purposes,  is  a  matter  of  some 
uncertainty.  But  to  those  who  looked  below  the 
surface,  there  were  signs  of  danger  in  the  very 
phenomena  which  were  now  inspiring  the  business 
community  with  new  hopes.  For  one  thing,  the 
time  was  extremely  unfortunate  for  hasty  and  ex- 
tensive domestic  speculation.  The  speculators  ran 
far  beyond  the  limit  both  of  genuine  trade  demand 
and  of  available  domestic  capital.  We  have  seen  in 
previous  chapters  the  bad  results  of  such  operations, 
even  in  the  best  days  of  the  resumption  year;  we 
have  also  seen  how  far  a  similar  movement  paved 
the  way  in  1892  for  the  collapse  of  1893.  The  com- 
mercial consequences  of  the  speculation  of  1895  were 
similar  to  those  of  preceding  years.  Prices  were 
carried  so  high  as  to  serve  the  purpose,  doubly  mis- 
chievous under  existing  conditions,  of  increasing 
merchandise  imports  and  checking  exports.  During 
the  first  half  of  1895,  imports  increased  ten  million 
dollars  a  month  over  the  corresponding  periods  of 
the  year  before. 

Nor  were  results  any  more  fortunate  in  the  export 
trade.  The  syndicate's  hopes  in  this  direction  were 
utterly  disappointed — partly,  no  doubt,  because  the 
corn-crop  failure  of  the  previous  season  had  left 
little  of  that  commodity  to  sell,  but  chiefly  because 
of  the  wild  domestic  speculation  for  the  rise  in 
wheat.  The  early  American  wheat  crop  was  dam- 
aged by  frost;  the  later  crop  was  very  large;  but 
the  speculators,  acting  on  the  basis  of  the  first  re- 
ports, actually  ran  up  the  price,  between  February 


246  American  Finance  [t895 

and  June,  thirty-three  cents  a  bushel.  As  in  the 
fall  of  1879,  *his  excessive  movement  brought  the 
export  trade  to  a  halt.  While  speculation  raged  in 
Chicago,  Russia  was  quietly  supplying  the  needs 
of  European  consumers.  In  half  a  dozen  staple 
markets,  the  course  of  events  was  similar.  As 
against  the  heavy  excess  of  merchandise  exports 
during  1894,  imports  during  the  first  nine  months 
of  1895  actually  exceeded  exports  by  forty-three 
million  dollars — decidedly  the  largest  balance  of 
merchandise  trade  against  us  since  the  climax  of 
speculation  in  1890. 

What  happened  with  wheat  happened  also  with 
securities.  Prices  of  stocks  and  bonds  rose  rapidly 
in  May,  in  response  to  the  foreign  buying;  but  in 
the  next  two  months  American  speculators  for  the 
rise  carried  prices  so  much  higher  that  Europe,  still 
more  or  less  sceptical  over  the  syndicate  experiment, 
seized  on  the  tempting  opportunity  to  secure  a 
profit,  and  sold  back  in  quantity  its  holdings  of 
American  securities.  Even  the  new  four  per  cents, 
one  half  of  which  the  syndicate  had  placed  in  Lon- 
don, taking  all  possible  precautions  to  prevent  their 
early  return,  were  unloaded  on  the  New  York 
market  almost  as  soon  as  they  were  released;  the 
home  speculators  had  forced  up  the  price,  within 
two  months,  from  119  to  124. 

These  various  results  followed  the  inexorable  rule 
of  commercial  logic;  but  they  doubled  the  strain 
upon  the  syndicate.  Foreign  exchange  returned 
quickly  to  the  normal  gold-shipping  point,  after  its 
sudden  fall,  and  once  more  the  bankers  had  to  bor- 


18951  Syndicate  Loses  the  Market  247 

row  heavily  in  London.  Now,  moreover,  two  radi- 
cal defects  in  the  syndicate's  plan  of  operation  began 
to  betray  themselves.  The  bankers  had  contracted 
to  obtain  one  half  the  gold  for  the  Treasury  in 
Europe.  Economically  speaking,  this  was  a  mis- 
take. It  added  precisely  the  sum  of  the  gold  im- 
portations to  the  syndicate's  London  debt,  and  it 
increased  a  domestic  money  supply  already  notori- 
ously excessive. 

The  second  defect  in  the  syndicate  plan  was  in- 
evitable from  the  nature  of  the  operation.  By  the 
coalition  of  all  the  international  houses  at  New 
York,  the  bankers  had  in  a  certain  sense  cornered 
the  foreign  exchange  market.  They  could  not,  to 
be  sure,  exact  any  very  exorbitant  price  for  drafts, 
because  such  a  policy  would  have  forced  mercantile 
remitters  to  combine  for  mutual  protection  and 
ship  gold  on  their  own  account.  But  the  minimum 
selling  price  fixed  for  their  drafts  by  the  syndicate 
in  midsummer  was  $4.90  to  the  pound  sterling.  A 
few  months  before,  when  drafts  were  **  covered  "  in 
export  gold,  bankers  had  sold  these  sterling  drafts 
freely  at  $4.88^  or  less.  That  is  to  say,  a  New 
York  merchandise  importer  with  a  foreign-trade  debt 
of  £,\o,QQO  to  settle,  had  to  pay  $49,000  for  his  draft 
in  the  middle  of  1895,  whereas  the  highest  rates  of 
1894  had  cost  him  only  $48,850.  The  motive  of  the 
syndicate  bankers  in  exacting  this  high  rate  was  ob- 
vious enough.  The  success  of  the  experiment  was 
growing  doubtful;  their  London  borrowings  had 
become  very  large.  They  might  be  forced  to  export 
gold,  and  they  fixed  their  price  for  sterling  drafts  so 


248  American  Finance  [1899 

high  as  to  protect  themselves  from  loss  in  such 
emergency. 

But  in  so  doing,  they  opened  a  wide  inducement 
for  competitive  sales  of  exchange.  Apparently  the 
syndicate  alliance  of  February  had  swept  the  market 
clear  of  competition.  But  the  syndicate  was  destined 
to  pass  through  the  experience  which  awaits  every 
manipulator  of  a  market  corner,  whatever  his  pur- 
poses or  motive.  All  commercial  experience  teaches 
that  the  most  skilful  possible  preparation  for  a  corner 
will,  in  nine  cases  out  of  ten,  overlook  some  source 
of  supply,  able  to  fill  current  demand  at  lower  prices, 
f>r  that  in  the  final  strain  upon  the  market  some  new 
yource,  hitherto  unheard  of,  will  be  discovered.  Ex- 
actly this  happened  in  1895.  With  a  demand  for 
millions  of  exchange  drafts  in  the  market,  with  no 
exchange  house  in  New  York  selling  below  $4.90, 
And  with  a  trade  profit  in  seUing  exchange  at  $4.88^ 
and  shipping  gold  to  "  cover,"  a  New  York  coffee- 
importing  house  with  powerful  European  connec- 
tions entered  the  sterling  market.  It  offered  drafts 
one  cent  per  pound  below  the  minimum  of  the 
syndicate ;  the  syndicate  houses  made  no  change  in 
rates,  and  their  new  competitor  therefore  instantly 
had  the  market  in  its  hands. 

On  July  20th,  this  house  presented  $1,000,000 
legal  tenders  at  the  Treasury  for  redemption  and 
shipped  the  gold  to  London  against  its  sales  of 
sterling  in  New  York.  During  the  next  five 
months,  $65,000,000  gold  was  shipped,  all  of  the 
specie  being  obtained  from  the  Treasury.  From  its 
summer  maximum  of  $107,000,000,  the  gold  reserve 


1899]       Better  Outlook  for  the  Treasury      249 

declined  again  to  $63,000,000  on  December  31st.' 
Recognizing  that  its  undertaking  to  protect  the 
Treasury  had  broken  down,  the  syndicate  did  what 
it  could  to  help  out  the  Government  through  volun- 
tary exchange  of  gold  for  notes.  In  August  and 
September,  it  thus  paid  over  some  twenty  millions 
gold,  which  was  immediately  engulfed  in  the  specie 
exports ;  this  being  only  the  old  and  futile  expedient 
of  1885,  of  1893,  and  of  1894.  In  October  the  syndi- 
cate contract  expired  by  limitation,  and  even  the 
voluntary  "  reimbursement  "  ended.  Apparently, 
the  syndicate  experiment  had  failed,  and  nothing 
was  left  for  the  United  States  but  a  repetition  of 
the  financial  strain  of  1894. 

But  the  situation  was  not  by  any  means  as  hope- 
less now  as  it  had  seemed  to  be  a  year  before.  The 
syndicate's  partial  mistakes  of  judgment  and  the 
plunge  of  domestic  industry  into  speculation  had 
done  mischief,  but  they  could  not  wholly  offset  the 
real  recovery  of  trade  during  the  interval  of  reassur- 
ance. There  were  other  reasons  why  the  outlook 
was  less  discouraging.  The  Fifty-third  Congress, 
whose  action  or  inaction  on  the  question  of  the  cur- 
rency had  alternately  menaced  the  public  credit,  had 
gone  to  the  people  in  November,  1894,  and  had 
been  repudiated  by  an  overwhelming  vote.  The 
Democratic  House  plurality  of  ninety-one  under  the 
elections  of  1892  was  turned  by  the  vote  of  two 
years  later  into  a  Republican  plurality  of  one  hun- 
dred and  forty.  Little  was  expected  in  the  way  of 
constructive  legislation,  even  with  this  radical  change 

'  Treas.  Rep.,  1895,  p.  51. 


250  American  Finance  ti895 

of  membership,  and  nothing  was  obtained.  But  it 
was  at  least  anticipated,  and  correctly,  that  the 
Fifty-fourth  Congress  would  take  warning  from  the 
fate  of  its  predecessor,  and  put  a  stop  to  the  policy 
of  financial  agitation. 

But  more  important  than  either  of  these  two  in- 
fluences were  two  facts  which  bore  directly  on  the 
currency  dilemma  in  the  closing  months  of  1895; 
first,  that  the  country's  actual  commercial  use  of 
money  was  nearly  eighteen  per  cent,  greater  than  in 
1894  and  larger  by  twenty  per  cent,  than  in  1893  ' ; 
and  second,  that  the  very  process  through  which 
the  Treasury's  gold,  accumulated  through  its  suc- 
cessive loans,  had  been  drawn  out,  had  added  to  the 
Government's  surplus  of  legal  tenders  no  less  a  sum 
than  $10 1, 000, OCX).'  This  was  one  fifth  of  the  entire 
amount  of  legal-tender  currency  in  existence.  Ex- 
cept through  a  revenue  deficit,  this  Treasury  legal- 
tender  surplus  was  removed  from  the  outside  cur- 
rency supply,  and  the  revenue  deficit,  as  a  result  of 
the  merchandise  import  movement,  had  fallen  to 
comparatively  small  proportions.  At  the  close  of 
December,  1895,  even  the  New  York  banks  held 
twenty-four  millions  less  in  legal  tenders  than  they 
had  held  a  year  before,  and  twenty-seven  millions 
less  than  at  that  date  in  1893.' 

These  were  important  changes ;  but  they  had  not 

*  New  York  Financial  Chronicle^  January  11,  1896,  p.  62. 

•  Statements  of  January  31,  1894,  and  December  31,  1895  ;   Treat. 
Rep.,  1896,  p.  55. 

'  New  York  weekly  bank  statements,  December  38,  1895  ;  Decem* 
ber  39,  1894  ;  December  30,  1893. 


1896]  The  Fourth  Bond  Issue  251 

yet  undone  the  mischief.  Trade  at  the  close  of  1895 
was  certainly  no  more  active  than  at  the  close  of 
1 89 1,  and  the  outstanding  supply  of  paper  currency 
was  as  large  or  larger.'  That  the  situation  was  still 
sufficiently  precarious  was  shown  not  only  by  the 
gold  withdrawals  on  the  breaking  of  the  deadlock  in 
exchange,  but  by  a  sudden  and  violent  outpour  of 
gold  in  December,  1895,  when  the  extraordinary 
Venezuela  episode  stirred  the  London  investment 
community  to  its  depths,  and  threw  on  the  Ameri- 
can market  a  load  of  liquidating  foreign  sales.  But 
the  nature  of  the  problem  was  now  much  more 
plainly  understood  by  both  Government  and  people. 
The  Administration  acted  promptly,  and  in  a  differ- 
ent way  from  any  of  its  previous  experiments.  On 
January  6,  1896,  the  Treasury  announced  a  new  four 
per  cent,  loan  for  the  very  large  sum  of  one  hundred 
million  dollars. 

Subscriptions  for  this  loan  were  again  required  in 
gold,  and  the  use  of  gold  obtained  from  the  Treasury 
through  note  redemption  was  again  as  generally 
practised  as  in  1894.  But  we  have  seen  that  the 
floating  supply  of  Government  notes  available  for 
such  purposes  was  now  materially  reduced.  Gold 
or  legal  tenders  subscribers  must  obtain  to  cover 
their  subscriptions,  and  the  demand  for  both  these 
forms  of  money  was  increased  by  the  fact  that  the 
loan  was  offered  at  popular  subscription  to  the 
highest  bidders,  and  that  the  number  of  intending 
subscribers  was  known  to  be  extremely  large.  The 
result  was  curious.     Some  of  these  subscribers  made 

•  Trtas,  Rep,,  1896,  pp.  121,  122. 


2^2  American  Finance  [ie»9 

an  open  market  bid  for  gold  coin ' ;  some  adopted 
the  much  more  unusual  expedient  of  bidding  a  frac- 
tional premium  for  legal  tenders  which  might  be 
used  to  get  gold  from  the  Treasury.*  One  or  two 
bankers  paid  a  premium  for  gold  abroad,  as  the 
syndicate  had  done  in  1895,  and  imported  it  for 
subscription  purposes  ;  and  this  incoming  gold 
actually  passed  on  the  ocean  outbound  gold  con- 
signed from  the  United  States  to  Europe.*  All  this 
situation  was  abnormal  enough,  but  it  arose  from 
two  really  encouraging  conditions — the  existence  of 
many  competing  bidders,  which  occasioned  a  de- 
mand for  currency  several  times  larger  than  the 
actual  face  value  of  the  loan,  and  the  fact  that 
the  dangerous  over-supply  of  Government  de-, 
mand  obligations  on  the  market  was  already  ma- 
terially reduced  and  was  about  to  be  reduced  much 
further.  In  effect,  the  Cleveland  Administration 
was  at  last  doing,  by  virtue  of  necessity,  exactly 
what  Hugh  McCulloch  had  undertaken  to  do,  thirty 
years  before ;  it  was  converting  its  floating  debt  into 
a  funded  loan.  That  it  was  not  retiring  perma- 
nently the  notes  thus  redeemed  from  a  redundant 
circulation,  and  replacing  them  by  a  conservatively 
constructed  bank-note  circulation,  was  not  the  Ad- 
ministration's fault.  From  his  first  report  to  his 
last,  Secretary  Carlisle  had  discussed  and  urged  this 

'  New  York  Financial  Chronicle,  January  18,  1896. 

*  New  York  Evening  Post,  January  25, 1896  ;  New  York  Tribune, 
January  26,  1896. 

»  New  York  Financial  Chronicle,  January  18  and  February  8, 
1S96 


1896]         Beginning  of  Real  Recovery  253 

solution  of  the  problem ;  but  Congress  would  not 
listen. 

The  loan  of  1896  succeeded.  It  was,  in  fact 
much  more  than  merely  the  successful  rehabilitation 
of  the  gold  reserve  against  United  States  notes. 
The  Government  loans  of  1894  were  placed,  it  will 
be  recalled,  only  through  urgent  personal  solicitation 
with  the  banks,  and  the  loan  of  1895  amounted  to 
the  purchase,  at  a  very  high  price,  of  the  services  of 
an  international  syndicate  to  protect  the  gold  reserves. 
But  the  $100,000,000  four  per  cent,  loan  of  February, 
1896,  offered  unreservedly  to  the  highest  bidders 
among  the  investing  public,  elicited  no  fewer  than 
4640  individual  bids,  applying  in  all  for  no  less  than 
$568,000,000 — one  of  the  most  gratifying  responses 
in  the  Government's  fiscal  history.*  The  accepted 
bids  ranged  all  the  way  from  iiof  to  120,  whereas 
the  four  per  cents,  of  1895  had  been  taken  by  the 
syndicate  at  104^^,  had  sold  no  higher  than  124  at 
the  height  of  that  year's  midsummer  speculation  for 
the  rise,  and  had  been  quoted  at  only  113  when  the 
loan  of  1896  was  on  the  market. 

The  resolution,  unanimously  adopted  by  the  New 
York  Chamber  of  Commerce  on  February  6th,  the 
day  following  the  opening  of  bids,  to  the  effect  that 
**  the  success  of  this  loan  should  dispel  every  doubt 
as  to  the  ability  and  intention  of  the  United  States 
Government  to  redeem  all  its  obligations  in  the  best 
money  in  the  world,"  correctly  enough  reflected  the 
inference  of  financial  markets.  So  far  as  concerned 
the  results  in  the  Treasury's  own  finances,  it  remains 
'  New  York  Financial  Chronicle,  February  8,  1896. 


254  American  Finance  li896 

only  to  say  that  on  the  day  before  the  instalment 
payments  against  the  loan  subscriptions  began,  the 
Government  gold  reserve  had  fallen  to  $44,563,493, 
and  that,  within  seven  weeks,  it  had  risen  to  $128,- 
713,709/  Gold  exports,  in  connection  with  uneasiness 
over  the  Presidential  campaign  which  followed,  did, 
to  be  sure,  again  bring  the  reserve  on  July  23d,  as  low 
as  $89,669,975,  and  another  proffer  by  the  banks  of 
$25,000,000  gold  in  exchange  for  legal  tenders  in  the 
Treasury  was  considered  necessary.'  But  the  swift 
movement  of  events  proved  that  even  this  recourse 
was  superfluous.  Long  before  1896  was  over,  the 
foreign  exchanges  had  turned  in  favor  of  New  York ; 
the  gold  reserve  never,  after  July,  1896,  fell  back 
below  $100,000,000;  a  new  era  in  American  finance, 
which  we  shall  have  next  to  review,  had  opened,  and 
in  March,  1900,  when  the  statute  was  finally  passed, 
declaring  gold  to  be  the  standard  of  value  in  the 
United  States,  this  proviso  was  inserted  : 

"  It  shall  be  the  duty  of  the  Secretary  of  the  Treasury  to  set  apart 
in  the  Treasury  a  reserve  fund  of  $150,000,000  in  gold  coin  and 
bullion,  which  fund  shall  be  used  for  such  redemption  purposes  only." 

To  this  was  added  the  definite  instruction  to  future 
Secretaries  of  the  Treasury,  that  this  $150,000,000 
fund  shall  be  maintained  "  by  exchanging  the  notes 
so  redeemed  for  any  gold  coin  in  the  general  fund 
of  the  Treasury  "  and  "  by  accepting  deposits  of  gold 
coin  ...  in  exchange  for  the  United  States  notes 
so  redeemed  " ;  and  that  if,  in  spite  of  these  pre- 

'  Daily  Treasury  statements,  February  10  and  March  31,  1896. 
•  New  York  Financial  Chronicle,  July  25  and  August  I,  1896. 


19001  The  Gold  Standard  Act  255 

cautions,  "the  gold  coin  and  bullion  in  said  fund 
shall  at  any  time  fall  below  $100,000,000,  then  it 
shall  be  his  duty  to  restore  the  same  to  the  maximum 
sum  of  $150,000,000  by  borrowing  money  on  the 
credit  of  the  United  States."  As  for  reissue  of 
Government  notes  redeemed  from  the  gold  reserve, 
the  Act  of  1900  established  the  further  highly  im- 
portant rule  that  such  notes  "  shall  be  held  in  the 
reserve  fund  until  exchanged  for  gold." 

It  will  be  observed  that  this  statute  operated  to 
reform,  in  five  important  particulars,  the  evils  of  the 
old  system  whose  effect  on  the  public  credit  and  on 
private  finance  we  have  seen  in  our  previous  chapters 
to  have  been  altogether  disastrous.  First,  the  gold 
reserve  against  United  States  notes  is  absolutely  set 
apart  as  a  distinct  fund  for  a  specific  purpose,  and 
not  left  to  contradictory  interpretation  of  the  language 
of  a  compromise  statute  by  legislators  and  courts.* 
Second,  the  $100,000,000  minimum  is  increased  to 
$1 50,000,000,  in  line  with  Secretary  Carlisle's  opinion.* 
Third,  the  use  of  this  gold  reserve  to  meet  a  deficit 
in  revenue  is  forbidden — a  use  which  was  a  funda- 
mental cause  of  its  depletion  in  1893.*  Fourth,  the 
raising  of  public  loans  to  make  good  a  serious  inroad 
on  the  gold  reserve,  through  redemption  of  United 
States  notes  to  procure  gold  for  export  purposes,  is 
not  only  authorized  but  required — a  power  over  the 
public  credit  which  had  up  to  that  time  been  strenu- 

•  See  pp.  24,  167,  185,  186,  209,  210,  211  ;    also  minority  report 
H.  R.  Judiciary  Committee  ;  Congressional  Record,  July  6 .  1892. 

*  Treas.  Rep.,  1893,  p.  Ixxi. 
'  See  pp.  103  and  204. 


256  American  Finance  11900 

ously  contested.'  Fifth,  through  the  holding  back 
of  notes  once  redeemed,  until  the  gold  reserve  is 
made  good  again,  provision  is  made  for  normal  con- 
traction of  the  outstanding  supply  of  notes  at  such  a 
juncture — the  lack  of  which  provision  had  repeatedly, 
in  the  preceding  decade,  aggravated  the  strain  upon 
the  Treasury,  and  deprived  it  of  the  self-protective 
power  enjoyed  by  all  great  banks  of  issue.*  In  other 
words,  the  time  was  very  near,  even  in  the  troubled 
year  1896,  when  the  loose  and  unscientific  fiscal 
statutes,  on  which  had  converged  the  doubts  and 
around  which  had  raged  the  political  conflicts  of  a 
generation  past,  were  to  be  replaced  by  a  sound  and 
unmistakable  declaration  of  policy  for  the  future. 

I  have  anticipated  the  progress  of  our  narrative  by 
this  glance  ahead  at  the  legislation  of  1900,  because 
it  was  in  many  ways  the  logical  sequel  to  the  events 
narrated  in  this  chapter.  It  now  remains  to  tell  con- 
secutively the  very  extraordinary  story  of  American 
finance  after  1896 — a  story  which  has  no  parallel  for 
dramatic  contrasts  in  the  history  of  the  United  States, 
and  few,  if  any,  in  the  financial  history  of  the  world. 

'  See  p.  211. 

*  See  pp.  49  and  50. 


CHAPTER  XI 

THE    "DTDUSTRIAL  BOOM" 

OUR  narrative  is  now  about  to  enter  upon  a  very 
remarkable  chapter  in  American  finance.  It 
is  a  chapter  which,  so  far  as  regards  its  general  ten- 
dencies, may  possibly  be  said  merely  to  have  repeated 
history;  but  which,  when  judged  by  the  dramatic 
change  in  the  country's  financial  condition,  and  by 
the  portentous  character  of  the  phenomena  of  the  day, 
stands  quite  by  itself.  What  we  have  to  consider,  in 
our  review  of  the  five  or  six  years  which  followed  1896, 
is  such  reversal  of  its  position  by  the  United  States 
that,  instead  of  the  crippled  industrial  and  financial 
state  of  1894,  with  the  country's  principal  industries 
declining,  its  great  corporations  drifting  into  bank- 
ruptcy, and  its  Government  forced  to  borrow  on 
usurious  terms  from  Europe  to  maintain  the  public 
credit,  there  was  presented,  in  the  short  space  of  half  a 
dozen  years,  a  community  whose  prosperity  had  become 
the  wonder  of  the  outside  world;  whose  productive 
industries  had  developed  such  strength  that  the  "Amer- 
ican invasion"  was  discussed  abroad  as  threatening 
17  857 


258  American  Finance  l1896 

ruin  to  our  European  competitors;  whose  corporations, 
when  properly  capitalized  and  managed,  had  grown 
so  profitable  that  the  strongest  financial  interests  of  the 
world  were  struggling  to  buy  possession  of  them;  whose 
banking-houses  subscribed  in  important  sums  to  new 
English  and  German  Government  loans,  not  to  mention 
the  public  bond  issues — $100,000,000  in  all,  within 
seven  months — of  Cuba,  Japan,  and  Mexico.  The 
startling  ups  and  downs  of  fortune  which  have  occurred 
in  other  communities  are  familiar.  The  story  of 
alternating  "booms"  and  panics  is  largely  the  story 
of  modern  industrial  progress.  It  is,  however,  the 
fact  of  a  complete  revolution  in  this  country's  position, 
not  only  as  regards  its  own  enterprises,  but  in  its  re- 
lation to  other  industrial  States,  which  challenges  atten- 
tion, and  it  is  this  which  we  shall  now  examine. 

Two  underlying  phenomena  of  the  day,  of  the  first 
importance  to  finance,  require  notice  before  resuming 
the  narrative  of  consecutive  events.  Their  scope  of 
influence  was  world-wide;  they  should,  on  the  face  of 
things,  have  operated  as  effectively  in  shaping  Euro- 
pean finance  as  in  shaping  our  own.  Yet  the  salient 
fact  of  the  period  is  the  expansion  of  American  indus- 
trial activity  out  of  all  proportion  to  that  in  other  coun- 
tries, and  it  will  be  a  part  of  our  program  to  discover 
why.  These  two  phenomena  were  the  immense  in- 
crease in  the  world's  gold  production,  and  the  world- 
wide rise  in  prices  of  commodities.  A  moderately 
rapid  increase  in  annual  gold  output  had  been  in 
progress  during  the  half-dozen  years  before  1896.    The 


1896]  The   World's  Gold  Output  259 

gold  product  of  1896  itself  was  greater  by  50  per  cent, 
than  that  of  1892,  and  was  very  nearly  double  that 
of  1884.  But  the  annual  increase  after  1896  was 
far  more  rapid.  In  1893,  the  world's  total  output 
was  $157,494,800;  in  1896,  $202,251,600;  in  1899, 
$306,724,100.1  In  1898  alone,  the  increase  in  annual 
product  over  1897  (whose  own  output  broke  all  preced- 
ing records)  was  more  than  $50,000,000  2 ;  this  marked 
an  increase  greater  than  had  been  scored  in  any  previous 
year  but  one  of  the  world's  history — that  exception 
being  the  $67,000,000  increase  of  1852,  when  the 
miner's  pick  was  dislodging  the  richest  surface  deposits 
of  Australia  and  California.^ 

.  Now  there  can  be  no  doubt  that  this  increase  had 
its  effect  on  the  financial  movement  of  the  period;  how 
much  effect,  is  a  controverted  question.  Professor 
Cairnes  showed  fifty  years  ago,  when  the  new  gold  was 
pouring  in  from  Australia  and  California,  that  prices  of 
commodities,  the  world  over,  were  affected  because, 
primarily,  the  new  mining  communities  gave  large 
orders  for  goods  to  the  older  manufacturing  States, 
thus  creating  a  new  demand,  which  paid  its  price  not 
in  other  merchandise,  but  in  gold.*  It  is  difficult  to 
trace  this  process  in  the  gold  production  of  to-day;  for 
the  world's  great  gold-fields  are  now  owned,  as  a  rule, 

«  U.  S.  Mint,  annual  estimates. 
^Ihid. 

*  Report,  Parliamentary  Commission  of  1876,  on  Depreci- 
ation of  Silver,  based  on  figures  of  Tooke,  Newmarch,  and 
the  London  Economist. 

*  Essays  in  Political  Economy,  J.  E.  Cairnes. 


26o  American  Finance  [I897 

not  by  scattered  individuals,  but  by  joint-stock  cor- 
porations with  large  capital.  One  thing  is  certain, 
that  the  banking  and  credit  institutions  of  the  world 
were  able,  through  the  increased  gold  production,  to 
accumulate  larger  reserves  of  gold.  Since  those  re- 
serves limit  the  credits  granted  by  the  banks  to  the 
financial  market,  it  follows  that  greater  and  more  con- 
fident activity  of  credit  should  have  been  possible.  M. 
Paul  Leroy-Beaulieu  pointed  out  in  1904  that  more 
than  one-half  of  the  gold  then  held  in  the  reserves  of  the 
world's  great  banks  and  of  the  United  States  Treasury 
had  been  accumulated  since  1890,  ^  But,  even  if  we 
were  to  concede  the  whole  claim  of  the  quantitative 
money  school,  we  should  still  have  to  confront  the 
question  why  the  United  States  should  have  been  the 
main  beneficiary.  Increase  in  gold  production  since 
1890  has  been  largest  of  all  at  the  Transvaal  mines, 
which  England  owns;  yet  it  is  England,  of  all  important 
industrial  States,  which  has  shown  least  signs  of  an 
industrial  "boom." 

All  statisticians  agree  that  low-water  mark  was 
reached  in  commodity  prices  in  midsummer,  1897. 
There  had  been  a  pretty  continuous  decline  since  1891; 
the  figures  of  DwrCs  Review,  adopted  by  our  Govern- 
ment's Bureau  of  Statistics,  give  a  unit  of  72.455  for 
July,  1897,  as  against  96.092  in  the  middle  of  1891 
and  74.317  in  the  middle  of  1896.  The  London  Econ- 
omist, using  another  unit,  gives  2259  for  the  middle 
of  1890,  1947  for  1896,  and  1885  for  July,  1897,  which 

'  Economists  Frangais. 


18971  Rise  in  Commodity  Prices  261 

is  the  low  figure  of  the  record.  By  the  year  1900,  the 
Duties  Review  unit  had  risen  from  72.445  to  95.295, 
and  the  Economist  index  number  from  1885  to  22 11. 
These  figures  are  the  embodiment,  in  the  form  of  dry 
statistics,  of  a  good  deal  that  happened  during  the 
interval.  Summed  up,  they  show  a  recovery  in  staple 
prices,  between  the  low  level  of  1897  and  the  high 
level  of  1900,  ranging,  according  to  method  of  striking 
averages,  from  17  to  31  per  cent. 

When  specific  prices  are  examined,  it  will  be  found 
that  this  general  advance,  especially  in  the  period  which 
we  are  reviewing,  was  most  notable  in  products  of  the 
earth.  Breadstuffs  as  a  whole,  for  instance,  rose  in 
this  country  40  per  cent,  between  the  middle  of  1897 
and  the  middle  of  1900^;  the  average  price  of  cotton 
in  1900  was  32  per  cent,  above  the  average  in  18972 ; 
in  iron,  the  average  was  higher  by  65  per  cent.  ^  In 
agriculture  particularly,  the  world's  normal  consump- 
tion was  apparently  increasing  faster  than  production. 
Our  yearly  cotton  exports  increased  scarcely  half  as 
rapidly  in  the  decade  after  1896  as  in  the  decade  before 
it.  At  one  time,  the  permanent  disappearance  of  the 
United  States  as  a  wheat  exporter  was  seriously  dis- 
cussed.* Whatever  is  to  be  assigned  as  the  dominant 
cause  for  the  persistent  rise  in  prices,  the  result  must 
clearly  have  been  beneficial,  most  of  all  to  agricultural 

»  Dun's  Review  estimates. 

»  Shepperson's  annual  compilations. 

»  Reports  of  the  American  Iron  and  Steel  Association. 

«  Liverpool  Corn  Trade  Year  Book,  1905. 


262  American  Finance  ii896 

countries,  such  as  the  United  States  still  is,  and  least 
of  all  to  countries  which  import  and  consume  the  pro- 
ducts of  other  States. 

We  shall  presently  see  exactly  how  these  phenomena 
operated  in  this  country.  Keeping  in  mind  that  the  real 
turn  in  the  movement  of  prices  came  in  the  middle  of 
1897,  it  will  first  be  well  to  observe  what  were  the  finan- 
cial, social,  and  political  conditions  which  existed  just 
before  it.  Industrial  markets  were  in  a  state  of  pro- 
found discouragement;  the  collapse  of  the  premature 
"trade  boom"  of  1895  had  left  the  country's  business, 
at  the  opening  of  1896,  seemingly  worse  ofif  than  at 
the  end  of  1894.  In  particular,  agricultural  markets 
were  in  the  grip  of  renewed  depression.  Wheat  was 
in  the  fifties;  cotton  in  1895,  at  53^  cents  a  pound  on 
the  New  York  market,  sold  at  the  lowest  price  in  nearly 
half  a  century.  The  South  and  West  were  calling  for 
free-silver  coinage,  and,  as  they  reasoned,  their  demand 
had  been  balked  by  President  Cleveland's  maintenance 
of  the  gold  standard  through  the  Treasury's  contract 
with  a  Wall  Street  banking  syndicate.  Under  these 
conditions,  the  Presidential  campaign  of  1896  ap- 
proached. The  Democratic  party  was  obviously  split 
in  two,  and  the  Populist  party  now  made  its  bid  for 
alliance  on  the  coinage  issue  with  the  Democrats. 
The  outcome  was  an  excited  and  tumultuous  Demo- 
cratic convention  at  Chicago,  where  a  young  Nebraskan 
Congressman,  thirty-six  years  old  and  previously  un- 
known in  national  politics,  delivered  a  speech  of  florid 
and  impassioned  eloquence  which  so  exactly  voiced 


1896]  The  Free-Coinage  Campaign         263 

the  high-pitched  resentments  and  aspirations  of  the 
delegates  that  he  was  chosen  for  their  candidate,  almost 
by  acclamation.  As  a  matter  of  course,  the  platform 
demanded  "  free  and  unlimited  coinage  of  both  silver  and 
gold  at  the  present  legal  ratio  of  16  to  i,  without  waiting 
for  the  aid  or  consent  of  any  other  nation,"  and  it 
opposed  "the  policy  and  practice  of  surrendering  to 
the  holders  of  the  obligations  of  the  United  States  the 
option,  reserved  by  law  to  the  Government,  of  redeeming 
such  obligations  in  either  silver  coin  or  gold  coin. "  ^ 

A  month  before  the  selection  of  Mr.  Bryan  as  the 
Democratic  candidate,  the  Republican  party  nominated 
Mr.  McKinley;  and  here  the  logic  of  events  moved 
more  potently  than  the  purposes  of  men.  McKinley's 
legislative  record  was  that  of  a  silver  advocate.  On 
November  5,  1877,  his  vote  was  cast  in  Congress  for 
the  Bland  Bill  "to  authorize  the  free  coinage  of  the 
standard  silver  dollar, "  and  in  the  following  February 
he  voted  to  pass  the  amended  free-coinage  bill  over 
the  veto  of  a  Republican  President.  He  had  voted  with 
his  party  for  the  Silver-Purchase  Act  of  1890.  But 
he  had  also  been  in  1890  the  head  of  the  Congressional 
committee  which  drafted  the  bill  imposing  the  highest 
protective  duties  in  our  history,  and  he  was  avowedly 
made  the  party's  candidate  in  1896  on  the  theory  that 
return  to  high  protection,  after  the  lower  tarifif  of  1894, 
would  be  the  campaign  issue.  The  tarifif,  however, 
was  not  destined  to  cut  any  appreciable  figure  in  the 

*  National  Democratic  Convention,  Chicago,  July  9,  1896. 


264  American  Finance 


[1896 


contest.  Mr.  McKinley's  campaign  began  with 
speeches  on  protection;  but  it  soon  appeared  that,  on 
the  tariff  issue  alone,  the  Republican  party  could  not 
win.  A  great  body  of  Democratic  voters  stood  aloof 
from  either  party.  They  would  not  indorse  the  Bryan 
free-coinage  candidacy,  but  were  halting  between  the 
alternatives  of  supporting  an  independent  Gold  Demo- 
cratic ticket,  nominated  by  bolting  Democrats,  or 
voting  for  McKinley  in  the  face  of  his  tariff  record, 
which  was  to  most  of  them  thoroughly  objectionable. 
Ordinary  common  sense  dictated  the  policy  to  be  pur- 
sued under  such  circumstances.  Mr.  McKinley,  in 
his  successive  speeches  to  visiting  delegations  at  Canton, 
said  less  and  less  about  the  tariff,  and  more  and  more 
about  the  currency,  until  on  July  30th  he  took  ground 
flatly  for  the  gold  standard. 

But  the  election  was  not  won,  and  it  probably  could 
not  have  been  won,  by  any  speech  of  the  candidate.  A 
vigorous  and  effective  "campaign  of  education,"  with 
unprecedented  quantities  of  campaign  literature  on 
economic  questions,  distributed  and  eagerly  read  by 
the  voting  constituency,  had  perhaps  most  to  do  with 
the  result;  the  naturally  larger  resources  of  the  sound- 
money  party  for  organizing  and  conducting  the  can- 
vass played  their  part.  But  Nature  herself  eventually 
took  a  hand.  A  few  months  before  the  November  vote 
was  to  be  cast,  the  attention  both  of  voters  and  of 
markets  converged  on  something  new.  In  August, 
wheat  touched  the  extraordinarily  low  price  of  53  cents 
a   bushel  on   the   Chicago  market, — a  figure  nearly 


1896]  Wheat  Crop  and  Election  265 

imremunerative  to  all  but  the  most  favorably  situated 
farmers.  Two  months  later  came  news  of  partial 
failure  of  the  crop  in  India,  whose  harvest  turned  out 
smaller  by  nearly  20  per  cent,  than  in  the  preceding 
year.  That  country,  which  had  sent  56,000,000  bushels 
to  the  outside  world  in  the  crop  year  1891,  was  actu- 
ally forced  to  import  wheat  in  1896.^  This  hap- 
pened when  the  consuming  world  had  been  using 
wheat,  at  the  low  prevailing  prices,  with  the  greatest 
freedom,  and  when,  accordingly,  supplies  of  wheat  on 
the  world's  great  markets  had  fallen  to  the  lowest 
level  since  the  famine  year  1891.  In  September,  1896^ 
the  so-called  "world's  visible  supply"  was  126,000,000 
bushels,  against  152,000,000  a  year  before,  and  190,- 
000,000  two  years  back.  2 

The  news  of  the  crop  failure  in  India,  coming  on  such 
a  situation,  forced  Liverpool  to  advance  its  bid  for 
American  wheat.  As  against  the  August  price  of  53 
cents  per  bushel,  wheat  rose  at  Chicago  to  70  cents 
in  September,  to  74^  in  October,  and  to  94!  in  election 
week.  The  moral  effect  of  this  movement  was  very 
great.  What  it  meant,  politically,  was  shown  by  the 
quick  assertion  of  Mr.  Bryan's  party  managers,  that 
the  "  money  power"  was  putting  up  wheat,  over  election 
day,  to  delude  the  agricultural  voter.  This  explana- 
tion of  the  rise,  in  view  of  the  facts  which  I  have 
cited,  was  at  least  superfluous.    The  point  which  it 

«  Liverpool  Corn  Trade  Year  Booh  for  1896,  pp.  57,  58,  and 

60. 

'  Ihid.,  p.  no. 


2  66  American  Finance  [i896 

tacitly  recognized,  however,  was  that  the  Western  voter 
had  been  told  that,  under  the  gold  standard  and  with 
the  silver-coinage  laws  repealed,  wheat  could  not  rise 
again;  and  here,  with  the  gold  standard  still  in  operation, 
was  wheat  at  the  highest  price  in  nearly  half  a  dozen 
years.  The  political  result  of  this  rise  in  wheat,  nota- 
bly in  the  doubtful  Western  States,  was  undoubtedly 
important.  It  largely  accounted  for  McKinley's  heavy 
majorities  in  farming  States  of  the  Middle  West,  such 
as  Ohio,  Michigan,  and  Minnesota,  which  in  1892 
gave  to  the  Democrats  and  Populists,  combined,  a 
plurality  of  21,000,  whereas  in  1896  the  Republican 
party's  vote  in  the  same  three  States  ran  148,000 
votes  ahead  of  its  two  antagonists. 

The  election  of  1896  settled  the  question  of  a  gold 
standard.  McKinley's  large  majority  of  95  in  the 
Electoral  College,  and  his  popular  plurality  of  602,555 
in  the  country  as  a  whole,  where  even  the  "landslide" 
of  1892  gave  Cleveland  only  380,961  plurality,  set  the 
seal  of  the  voters  effectively  on  the  verdict.  The 
Stock  Exchange  had  witnessed  a  demoralizing  mid- 
summer break  in  prices,  and  had  recovered  only  cau- 
tiously on  the  eve  of  election — when,  indeed,  gold 
went  actually  to  a  premium  of  if  per  cent.,  when  New 
York  bankers  invested  their  surplus  resources  largely 
in  drafts  on  London,  when  call  money  touched  125  per 
cent,  in  Wall  Street,  when  a  $10,000,000  syndicate  of 
bankers  was  organized  for  co-operation  in  a  possible 
crisis,  and  when  a  long  line  of  private  individuals  stood 
outside  the  United  States  Sub-treasury's  redemption 


1896]  Victory  of  the  Gold  Party  267 

window  to  exchange  their  legal  tenders  for  gold  coin.  ^ 
This  state  of  affairs  ended  abruptly  November  4th, 
when  election  results  were  known.  Money  rates  fell 
in  a  week  to  4  per  cent.;  within  a  day,  gold  coin  was 
presented  at  the  same  Sub-treasury  windows  for  con- 
version into  legal  tenders.  ^  This  WcLS  the  first  re- 
sponse of  the  financial  markets. 

It  is  a  popular  impression,  with  perhaps  the  ma- 
jority of  people,  that  industrial  revival  was  immediate 
and  continuous  after  the  election  of  November,  1896, 
and  to  this  belief  have  been  partly  traceable  some 
singular  Stock  Exchange  phenomena  at  subsequent 
elections.  The  belief  is  erroneous.  That  the  defeat 
of  the  free-coinage  demonstration,  at  what  was  ap- 
parently the  psychological  moment  promising  best  for 
its  success,  was  an  event  of  great  importance  in  the 
country's  economic  history,  there  can  to-day  be  little 
doubt.  The  outcome  of  the  election  certainly  con- 
tributed to  the  later  return  of  full  financial  confidence 
and  industrial  activity.  But  confidence  and  industrial 
activity  were  by  no  means  an  immediate  sequel.  The 
rise  in  stocks,  which  had  begun  before  election, 
lasted  barely  forty-eight  hours  after  November  4th; 
then  heavy  realizing  sales  began,  and  in  the  sequel, 
financial  depression  prevailed  again  until  far  into 
1897.3     During  November,   fully  700  manufacturing 

»  New  York  Financial  Chronicle,  Oct.  31,  1896,  pp.  768, 
770,  782;  Nov.  7,  1896,  p.  814. 
^Ibid. 
»  Ibid.,  Jan.  2,  1897,  p.  16. 


268  American  Finance  [1897 

establishments  resumed  work  or  added  to  their  working 
force.  This  was  taken  as  reflecting  reassurance  in  the 
business  community  over  the  election  verdict  on  the 
currency.  But  the  rush  of  activity  ceased,  in  a  month 
or  two,  as  suddenly  as  it  had  begun.*  Instead  of 
immediate  and  continuous  revival,  the  first  half  of 
1897  was  a  period  of  financial  uncertainty  and  de- 
pression. The  first  half  of  1896  had  been  regarded 
as  hard  times;  yet  the  checks  drawn  on  all  the  coun- 
try's banks  in  the  similar  period  of  1897  showed  de- 
crease of  $570,000,000,  or  2\  per  cent.  ^  In  the  second 
quarter  of  1897,  liabilities  involved  in  commercial 
failures  throughout  the  country  were  $3,000,000  greater 
than  in  1896.3  In  July,  1896,  there  had  been  in  blast 
in  this  country  191  iron  foundries,  with  a  weekly  output 
of  180,500  tons,  and  with  815,000  tons  piled  up  in 
their  yards.  This  was  then  called  a  very  unfavorable 
showing;  yet  in  July,  1897,  the  number  of  furnaces  in 
blast  had  further  decreased  46,  to  145,  weekly  output 
had  fallen  16,000  tons,  to  164,000,  and  the  idle  stock 
of  iron  had  risen  nearly  200,000  tons,  to  1,004,000.* 
The  victorious  party  in  the  election  of  1896  had 
won,  as  we  have  seen,  on  the  issue  of  the  currency,  and 
it  was  destined  in  due  time  to  embody  the  people's 
verdict  in  the  statutes.    But  the  Republican  platform 

>  New  York  Financial  Chronicle,  Jan.  a,  1897,  p.  16,  also 
Jan.  I,  1898,  pp.  7,  8,  and  9. 
» Ibid.,  July  3,  1897. 
»  Bradstreet's  reports. 
*  Iron  Age  figures. 


1897]  The  Dingley  Tariff  269 

of  June,  1896,  had  also  declared  for  raising  the  import 
duties,  and  denounced  the  Wilson  Tariff  as  "  injurious 
to  the  public  credit  and  destructive  to  business  enter- 
prise." That  the  campaign  issue  had  been  changed 
in  the  course  pf  the  contest  did  not  change  the  purposes 
of  party  leaders.  Revision  of  the  tariff  was  at  all 
events  the  first  work  of  the  newly-elected  Congress. 
The  Dingley  Tariff  Law,  enacted  on  July  23,  1897, 
not  only  restored  the  scale  of  duties  lowered  by  the 
Wilson  Bill  of  1894,  but  in  many  important  industries 
fixed  higher  import  tariffs  even  than  the  McKinley 
Law  of  1890.  The  average  rate  of  duties  collected 
in  the  fiscal  year  1893,  under  the  McKinley  Act,  was 
49^^  per  cent.  In  the  two  fiscal  years  1895  and  1896, 
when  the  Wilson  Bill's  schedules  had  full  scope,  the 
average  rate  was,  respectively,  41 1  and  40.  In  1898, 
under  the  Dingley  Act,  the  percentage  rose  to  49J,  and 
it  averaged  52  in  1899  * — a  height  not  paralleled,  even 
in  Civil  War  times.  ^ 

In  so  far  as  the  Dingley  Tariff  was  designed  to 
correct  the  deficit  in  the  Government's  finances — a 
matter  of  importance — it  was  not  an  effective  measure. 
When  imports  are  Shut  out  by  a  higher  tax  rate,  the 
tax  is  less  productive.  The  deficit  continued;  cus- 
toms revenue  itself,  during  the  twelve  months  after  the 
law's  enactment,  was  smaller  than  in  either  year  under 
the  Wilson  Tariff.  ^     But  it  has  long  since  ceased  to 

•  U.  S.  Statistical  Abstract  for  1907,  p.  505. 

»  Taussig,  Tariff  History  of  U.  S.,  pp.  167  and  259. 

*  y.  S.  Statistical  Abstract  for  1900,  p.  29. 


270  American  Finance  [i897 

be  the  fashion  to  ascribe  the  subsequent  "boom" 
in  American  prosperity  to  the  Dingley  Tariff.  One 
reason  is  that  the  similar  increase  in  duties  by  the  Mc- 
Kinley  Tariff  of  1890  was  followed,  not  by  prosperity, 
but  by  disaster.  The  other  is  that  our  later  industrial 
recovery  found  expression  chiefly  in  an  enormous  export 
trade.  If  higher  import  duties  had  any  influence  on 
that,  they  must  have  checked  it,  because  raw  materials 
used  in  exported  manufactures  were  now  taxed  more 
heavily,  and  because,  all  other  things  being  equal, 
restriction  of  imports  through  such  taxes  normally 
curtails  the  movement  of  exports  sent  in  exchange  for 
them.  All  such  considerations  were  soon  dismissed 
from  the  public  mind  of  1897,  by  a  turn  of  events  which 
repeated,  on  a  larger  scale  and  in  an  equally  extraor- 
dinary way,  the  story  of  1879. 

We  have  seen  that,  although  the  Indian  wheat  crop 
failure  of  1896  made  a  great  hole  in  the  world's  sup- 
plies and  caused  an  immediate  rise  in  the  price  of  wheat, 
nevertheless  Europe  itself  raised  in  that  year  a  crop 
of  good  proportions.  What  happened  in  1897  was, 
first,  that  a  scorching  drought  in  France  cut  down 
the  season's  wheat  yield  in  that  country  93,000,000 
bushels  from  1896;  next,  that  a  wet  harvest  reduced  the 
Russian  crop  nearly  80,000,000  bushels;  and,  finally, 
that  a  season  of  storms  flooded  so  disastrously  the 
Danube  Valley  that  Austria  and  the  Balkan  States 
gathered  less  wheat  by  127,000,000  bushels  than  in  the 
preceding  year.  The  whole  European  crop  fell  short 
of  1896  by  350,000,000  bushels, — a  loss  of  no  less  than 


18971        Another  Great   Wheat   Year         271 

30  per  cent.  ^  Had  the  American  harvest  of  1897  re- 
mained at  the  figures  of  the  year  before,  a  great  dis- 
aster would  have  befallen  Europe.  This  country's 
fortune  had,  however,  stood  it  in  good  stead.  The  high 
price  of  wheat  in  the  autumn  of  1896  had  encouraged 
farmers,  the  country  over,  to  plant  more  wheat  in  the 
ensuing  spring.  This  increase  amounted  to  nearly 
five  million  acres.  Weather  conditions  in  the  United 
States  were  favorable  throughout  the  season.  The 
resultant  crop  ran  103,000,000  bushels  ahead  of  1896, 
and  was,  with  one  exception,  larger  than  any  pre- 
viously harvested. 

Under  the  circumstances,  it  was  sold  at  extraordi- 
narily good  prices.  By  August  "dollar  wheat"  was 
touched  again  on  the  Chicago  Board  of  Trade,  for  the 
first  time  since  1891;  and  the  price  was  maintained 
throughout  the  ensuing  season.  At  this  price,  con- 
suming Europe,  with  its  supplies  already  depleted 
by  the  Indian  failure  of  the  year  before,  bought  our 
wheat  in  quantities  quite  unprecedented.  During  the 
twelve  months  after  the  harvest  of  1896  the  United 
States  exported,  in  grain  and  flour,  83,000,000  bushels 
of  wheat.  In  the  same  period,  after  the  1897  harvest, 
the  export  was  150,000,000.  The  value  of  the  season's 
exported  grain  increased  no  less  than  $122,000,000. 
One  result  of  this  notable  trade  incident  was  the  im- 
port, during  the  same  twelve  months,  of  $120,000,000 
gold, — the  first  natural  movement  of  the  kind  in  this 

«  Year-hooh  for  i8q8,  U.  S.  Department  of  Agriculture, 
p.  686. 


2  72  American  Finaiice  [i897 

direction  since  the  autumn  of  1891.  Directly,  this 
inflow  of  gold,  which  was  lodged  with  the  Treasury  in 
exchange  for  notes,  caused  a  rise  in  the  Government's 
gold  reserve  from  the  $44,500,000  of  February,  1896, 
and  the  $137,000,000  at  the  end  of  1897,  to  the  hand- 
some figure  of  $245,000,000  in  the  middle  of  1898. 

It  need  hardly  be  pointed  out  that  this  position 
made  possible  the  success  of  the  Gold-Standard  Act  in 
1900,  as  it  certainly  would  not  have  been  possible  in 
1896.  The  Act  of  1900  not  only  required  establishment 
of  a  fund  of  $150,000,000  gold  to  insure  redemption 
of  the  notes  of  the  Government,  but,  by  the  facilities 
which  it  opened  for  the  establishment  of  new  national 
banks,  it  created  a  new  demand  for  cash,  to  be  held 
in  their  reserves.  Since  increase  of  Government  paper 
money,  other  than  certificates  against  deposited  gold 
or  silver,  had  been  stopped  by  repeal  of  the  Silver- 
Purchase  Law  in  1893,  it  followed  that  this  new  demand 
for  reserve  money  must  be  met  from  imported  gold. 
In  short,  nature  helped  out  the  later  statute  of  currency 
reform,  as  it  did  the  Specie  Resumption  of  1879.  In 
both  cases  it  was  a  European  famine  and  a  bumper  crop 
at  home  which  lifted  us  happily  over  the  rough  places 
of  the  road. 

We  have  seen  how  the  export  of  our  wheat  to  famine- 
stricken  Europe  piled  up  our  export  trade  and  reversed 
our  situation  on  the  international  market.  The  wheat 
was  the  primary  influence;  but  scarcely  less  important 
was  the  revival  in  general  trade,  shown  by  the  increase 
in  bank  exchanges,  which  amounted  during  the  first 


1898]  The  ^'American  Invasion"  273 

half  of  1898  to  30  per  cent,  over  1897.  It  was  natural 
that  this  increase  should  have  been  greatest  in  the  grain- 
growing  West,  to  which  accrued  the  first  benefits  of  the 
successful  harvest;  and  it  was  natural  that,  as  domestic 
trade  expanded,  and  with  it  the  demand  for  money, 
capital  should  be  drawn  from  abroad  to  keep  the  busy 
wheels  in  motion.  Now,  however,  a  more  novel  and 
dramatic  episode  of  the  American  trade  revival  came 
in  sight. 

It  was  not  until  the  close  of  1897  that  people  began 
to  hear,  by  way  of  Europe,  of  "  the  American  invasion." 
This  matter  came  to  the  front,  as  a  topic  of  discussion, 
in  a  remarkable  speech  delivered  at  Vienna,  that  Decem- 
ber, by  the  Austrian  Minister  of  Foreign  Affairs,  Count 
Goluchowski.  It  was  asserted  in  this  speech  that  "the 
destructive  competition  with  trans-oceanic  countries  re- 
quires prompt  and  thorough  counteracting  measures, 
if  the  vital  interests  of  the  European  people  are  not  to 
be  gravely  compromised."  "European  nations,"  the 
Austrian  statesman  concluded,  "must  close  their 
ranks  and  fight,  shoulder  to  shoulder,  in  order  suc- 
cessfully to  defend  their  existence. "  ^ 

Directed  as  it  obviously  was  at  the  United  States, 
what  did  this  singular  diatribe  mean?  Certainly, 
neither  Austria  nor  Europe  at  large  could  have  been 
protesting  against  the  "American  invasion"  of  Europe's 
grain  market;  for  that,  in  1897,  was  Europe's  only 
alternative  to  famine.    It  did  not  require  long  to  dis- 

•  New  York  Financial  Chronicle,  Dec.  18,  1897,  p.  1147. 
xi 


2  74  American  Finance  [1897 

cover  that  Count  Goluchowski  had  his  eye  on  our  ex. 
port  of  manufactures.  The  volume  of  these  exports 
was  practically  stationary  in  the  eight  years  between 
1882  and  1890,  and  it  increased  very  slowly  after  that. 
In  the  hard  times  after  1894,  however,  when  there 
seemed  little  hope  in  a  domestic  market,  our  manu^ 
facturers  began  to  look  abroad.  As  we  have  seen  in 
noticing  the  iron  trade  figures,  even  as  late  as  1897, 
great  stocks  of  unsold  goods  had  piled  up  after  every 
effort  to  stimulate  home  production.  But  we  have 
learned  also  that,  while  our  own  markets  were  pass- 
ing through  that  period  of  despondency,  Europe's 
were  reviving  rapidly^;  by  1897,  their  recovery  had 
assumed  the  dimensions  of  a  "boom." 

I  have  shown  what  was  our  own  manufacturers' 
position.  Prices  were  low,  wages  were  low,  material 
was  abundant,  the  struggle  for  profits  had  sharpened 
the  eye  for  improvements  and  economies.  The  one 
thing  needed  was  an  expanding  market.  At  home 
there  was  none  as  yet;  but  here,  in  foreign  States,  had 
suddenly  arisen  a  demand  for  manufactured  goods 
so  urgent  that  at  the  moment  English  and  German 
manufacturers  could  hardly  fill  it.  Our  people  would 
scarcely  have  shown  themselves  possessed  of  Yankee 
shrewdness,  had  they  neglected  the  opportunity;  and 
they  did  not  neglect  it.  They  were,  in  fact,  in  a  pe- 
culiarly favorable  situation  to  take  advantage  of  it. 
The  raw  material  lay  almost  at  the  doors  of  the  factories. 

>  See  page  843. 


18981         Beginning  of  Trade  Revival        275 

Skilled  laborers,  chafing  after  their  four-year  period  of 
partial  idleness,  could  be  had  at  once  and  in  quite 
suflScient  number,  and  orders  from  home  consumers 
were  so  light  that  scarcely  half  the  producing  capacity 
of  well-equipped  mills  was  being  used  for  the  domestic 
trade.  Our  manufacturers  took  foreign  orders  for 
prompt  delivery  which  the  English  and  German  mills 
were  simply  unable  to  accept.  We  sold  our  goods,  not 
only  in  the  so-called  neutral  markets,  but  in  the  markets 
of  Continental  Europe.  ^  The  result  was  that,  between 
1893  and  1899,  o^^  export  of  manufactures  actually 
doubled.  They  were  $158,000,000  in  the  one  year, 
and  $339,000,000  in  the  other;  and  they  increased  a 
hundred  millions  more  in  the  fiscal  year  1900. 

It  is  plain  enough,  from  the  facts  which  I  have  re- 
called, that  there  was  nothing  mysterious  about  this 
American  invasion,  and  certainly  nothing  harmful. 
If  we  had  so  flooded  Europe  with  cheap  iron  and  steel 
that  its  own  manufacturers  lost  their  market,  their 
case  might  have  been  different.  But  nothing  of  that 
sort  happened.  During  the  five  years  between  1894 
and  the  stopping  of  Europe's  industrial  boom  in  1899, 
by  the  Boer  War  and  the  German  bank  panic, — ^years 
in  which  we  were  enlarging  our  output  and  export  of 
manufactured  steel, — Great  Britain's  annual  steel 
production  rose  from  3,210,000  tons  to  5,000,000, 
Germany's  from  3,641,000  to  6,300,000.2    Under  all 

»  American  Iron  and  Steel  Association,  Report  for  1898. 
'  Annual  statistical  reports,  American  Iron  and  Steel  Asso- 
ciation; especially  Report  for  1899,  p.  77. 


276  American  Finance  [1B98 

the  circumstances,  not  only  did  the  volume  of  our  grain 
and  cotton  and  manufactured  exports  increase,  but 
their  average  value  rose.  It  is  easy  to  see  why,  under 
such  conditions,  our  total  export  trade,  crossing  the 
billion-dollar  mark  in  the  fiscal  year  1897,  should  have 
risen  to  $1,200,000,000  in  1898,  to  nearly  $1,400,000,- 
000  in  1900,  and  to  not  quite  $1,500,000,000  in  1901. 
Stimulated  by  this  great  outside  demand,  our  trade 
activity  and  our  industrial  profits  rose  to  extraordinary 
figures. 

The  first  task  of  this  era  of  returning  prosperity 
was  the  task  of  financial  reconstruction.  We  saw, 
in  reviewing  the  events  of  1894,  in  what  state  of  wreck 
the  panic  of  1893  had  left  the  country's  railway  finances. 
Not  only  was  61  per  cent,  of  the  outstanding  shares 
of  American  railways  receiving  no  dividend  whatever, 
but  one-fourth  of  that  stock  represented  roads  in  the 
hands  of  bankruptcy  courts.  ^  As  late  as  the  middle 
of  1895,  receivers  were  operating  169  railways,  with 
37,855  miles  of  track — more  than  one-fifth  of  the 
country's  total  railway  mileage,  and  represented  on 
the  markets  by  no  less  than  $2,400,000,000  stocks  and 
bonds.  2 

In  the  hard  times  of  1894,  no  rehabilitation  of  these 
wrecked  corporations  was  possible;  the  achievement 
called  for  abundant  confidence  and  abundant  capital; 
and  it  was  only  with  the  returning  signs  of  promise 

«  Seep.  218. 

2  Interstate  Commerce  Commission,  Report  on  Statistics  of 
Railways  for  1895,  pp.  10,  12,  and  107. 


1897]  Railway    Reorga7iization  277 

in  the  next  three  years  that  substantial  progress  was 
made.  In  December,  1895,  the  Erie  was  taken  out  of 
receivers'  hands;  in  the  same  month,  the  Atchison, 
Topeka  &  Santa  F^  emerged  from  bankruptcy;  in 
September,  1896,  the  Philadelphia  &  Reading  was 
placed  on  its  feet.  Foreclosure  was  in  each  case  fol- 
lowed by  purchase  of  the  properties  in  behalf  of  former 
shareholders,  who,  as  a  condition  to  their  participation 
in  the  new  company,  were  assessed  pro  rata  to  raise 
the  needed  cash  resources,  the  bondholders  submitting 
to  lower  interest  rates,  usually  receiving  stock  in  the 
new  corporation  as  a  solace.  That  this  was  by  no 
means  as  simple  an  achievement  as  might  be  imagined, 
may  be  shown  by  two  sample  reorganizations,  highly 
interesting  in  retrospect  because  of  the  longer  financial 
sequel.  The  Union  Pacific  was  sold  in  foreclosure 
during  November,  1897.  It  was  bought  in  by  a  new 
Union  Pacific  Company,  for  whose  stock  old  share- 
holders had  exchanged  their  $60,868,000  former 
holdings  share  for  share,  paying  also  a  $15  per  share  cash 
assessment.  There  was  no  way  of  compelling  a  former 
shareholder  to  pay  this  sum;  he  might  throw  away  his 
stock,  which  had  sold  on  the  Exchange,  the  preceding 
summer,  at  4  cents  on  the  dollar.  Therefore  a  banking 
syndicate  was  organized  to  guarantee  the  cash  assess- 
ment; they  committed  themselves  for  $15,000,000. 
What  happened  to  the  bondholders  may  be  judged  from 
the  fact  that  the  company's  old  first  mortgage  6  per 
cent,  bonds  were  exchanged  for  100  per  cent,  in  new 
first  mortgage  4's,  plus  50  per  cent,  in  new  preferred 


278  American  Finance  ti897 

stock.*  This  was  the  company  whose  officers,  ten 
years  later,  were  using  its  accumulated  resources,  to 
the  extent  of  $131,000,000,  to  buy  control  of  half  a 
dozen  other  railways. 

Northern  Pacific  was  similarly  sold  in  July,  1896; 
the  $49,000,000  old  common  stock  paid  a  15  per  cent, 
cash  assessment  and  the  $35,000,000  old  preferred, 
10  per  cent.  The  underwriting  syndicate  guaranteed 
$5,000,000;  through  scaling  down  interest  or  exchang- 
ing old  bonds  for  new  stock,  annual  fixed  charges  were 
reduced  $4,853,000. 2  The  old  stock  sold  on  the  New 
York  Stock  Exchange  in  May,  1896,  at  25  cents  per 
$100  share;  it  was  the  stock  delivered  in  exchange  for 
this,  plus  the  $15  cash  assessment,  which  sold  for  $1000 
per  share  in  the  famous  "corner"  of  May,  1901.  Natu- 
rally, this  process  of  rehabilitation  grew  more  general 
as  return  of  prosperity  became  assured.  In  1893,  rail- 
ways with  $1,781,000,000  stock  and  bonds  were  placed 
in  receivers'  hands;  in  1896,  railways  with  $1,150,377,000 
were  sold  under  foreclosure  2;  for  each  process,  these 
were  totals  exceeding  by  nearly  a  billion  dollars  those 
of  any  other  year  on  record.*  But  as  against  the  169 
insolvent  railroads  of  1895,  with  37,856  miles  of  track 
and  $2,439,000,000  capital  liabilities,  existing  receiver- 

»  Reorganization  plan  of  October  15,  1895;  see  Financial 
Chronicle,  Oct.  19,  1895,  p.  705. 

2  Reorganization  plan  of  March  16,  1896;  Financial 
Chronicle,  March  21,  1896,  p.  550. 

»  Railway  Age  annual  compilations;  see  U.  S.  Statistical 
Abstract  for  1906,  p.  590. 

*Ibid. 


1898]  The  Spanish   War  279 

ships  in  the  middle  of  1898  covered  only  94  roads,  with 
a  mileage  of  12,745  and  a  capital  of  $661,500,000,  and 
in  1900  only  52  roads,  with  mileage  of  4178  and  capi- 
tal of  $351,000,000.^  By  1900,  net  earnings  of 
all  American  railways  had  increased  fifty  per  cent, 
over  1895,  and  actual  dividends  paid  out  were  nearly 
doubled.  ^ 

This  expansion  of  financial  and  industrial  activity 
had  presently  to  endure  some  rather  crucial  tests. 
The  United  States  declared  war  against  Spain  in  April, 
1898,  and  this  for  a  month  upset  all  financial  markets. 
Our  situation  on  international  exchange,  however,  was 
so  strong  that  the  very  first  thing  the  country  did, 
even  before  war  had  been  declared,  was  to  draw 
$60,000,000  gold  from  Europe  to  protect  its  bank 
position.  The  war  was  quickly  over.  Admiral  Dewey 
destroyed  the  Spanish  fleet  at  Manila  on  the  first  of 
May;  Cervera's  fleet  was  annihilated  July  3d,  outside 
Santiago  harbor;  on  July  26th,  Spain  asked  for  terms, 
and  on  August  12  th,  the  protocol  to  the  treaty  of  peace 
was  signed.  In  several  ways,  the  war  served  to  demon- 
strate the  new  financial  resources  of  the  country.  A 
$200,000,000  3  per  cent,  war  loan,  offered  at  par  to  in- 
vestors in  July,  elicited  subscriptions  for  $1,500,000,000; 
it  was  taken  by  home  subscribers,  the  separate  allot- 
ments numbering  320,000,^  and  it  went  to  a  premium 

«  Interstate  Commerce  Commission,  Reports  on  Statistics 
of  Railways,  1898,  p.  11;  1900,  p.  11. 
»  Poor's  Manual,  annual  tables. 
»  Secretary  Gage,  Annual  Treasury  Report  for  1898. 


28o  American  Finance 


[1898 


of  6  per  cent,  within  three  months.  In  April,  1899,  our 
Government  paid  Spain  a  $20,000,000  indemnity  for  the 
Philippines,  and  the  $20,000,000  export  of  gold,  caused 
by  the  operation  in  exchange,  did  not  prevent  a  con- 
tinuous increase  in  the  Treasury's  own  gold  reserve.  ^ 

Partly  in  connection  with  the  war,  wheat  went  to  a 
price — $1.85  per  bushel  at  Chicago,  on  May  loth — 
never  but  once  exceeded  in  the  thirty  preceding  years. 
This  was  a  corner,  which  broke  down  as  corners  usually 
do;  but  it  was  unlike  many  corners,  in  that  it  occurred 
when  the  American  farmer  still  had  plenty  of  wheat  to 
sell,  and  when  he  received  the  benefit  of  the  corner 
prices.  Our  wheat  crop  of  1897  was  the  second  largest 
ever  harvested  in  this  country.  The  crop  of  1898 
exceeded  all  precedent,  and  that  of  1901  was  10  per 
cent,  larger  still.  In  the  fiscal  year  1893  our 
imports  exceeded  exports  by  $18,700,000.  In  1897 
the  excess  of  exports  was  $286,000,000.  The  next 
year  it  was  $615,000,000. 

This  abnormal  accumulation  of  foreign  credits  had 
some  strange  results.  First,  the  pressure  of  domestic 
capital  on  our  home  investment  markets  raised  prices 
to  unexpected  heights.  As  a  result,  foreign  holders 
of  our  securities  sold  them  back;  and  Europe  was 
practically  drained  of  American  stocks  and  bonds. 
Then,  for  the  first  time  in  our  history, we  began  to  lend 
to  Europe.  President  Kriiger  of  the  Transvaal  Re- 
public declared  war  on  England  in   October,   1899. 

>  V.  S.  Treasurer's  Report,  1899,  p.  45. 


1899]        Boer   War  and  the  Markets  281 

Transvaal  mines  had  in  1898  produced  $75,(500,000 
gold* — more  than  one-fourth  of  the  whole  world's  out- 
put of  the  year — and  exactly  that  amount  was  received 
in  London,  from  South  Africa,  during  1899.2  But 
with  hostilities  begun  and  the  Transvaal  frontier 
blockaded,  production  sank  at  once  to  insignificant 
proportions;  then,  when  the  Boer  authorities  placed 
an  embargo  on  the  mines,  it  ceased  entirely.  From 
April,  1900,  to  April,  1901,  inclusive,  scarcely  an  ounce 
of  gold  was  mined  in  the  Transvaal,  ^  and  in  the  whole 
year  1900,  England  received  only  $1,800,000  gold 
from  South  Africa;  less  by  $7,000,000  than  the  sum 
which  it  had  to  export  to  the  banks  of  Cape  Colony.  4 
As  a  consequence  of  this  sudden  curtailment  of  sup- 
plies, coming  with  trade  and  speculation  abnormally 
active  throughout  Europe,  the  great  State  banks  began 
to  bid  for  gold.  The  Bank  of  England's  official  dis- 
count rate  went  in  December,  1899,  to  6  per  cent.,  a 
height  not  reached  since  the  panic  of  1890;  the  Imperial 
Bank  of  Germany  fixed  7  per  cent.,  the  highest  rate 
in  its  history,  s 

In  the  face  of  this  confusion  of  the  markets,  and  of 
several  defeats  which  foreshadowed  a  long  campaign, 
England  placed  its  war  loans.     Before  the  war  was 

>  Monthly  and  annual  reports,  Johannesburg  Chamber  of 
Mines. 

'Annual  report  of  British  Board  of  Trade,  1899. 

J  Monthly  reports,  Johannesburg  Chamber  of  Mines;  see 
London  Economist,  June  14,  1902,  p.  931. 

«  British  Board  of  Trade  Statement  for  1900. 

•  London  Economist,  Berlin  letter,  Dec.  23,  1899,  p.  1815. 


aSa  American  Finance  [i899 

ended — and  that  was  not  until  May  31, 1902 — England 
had  issued  $795,000,000  in  new  Government  securities; 
the  whole  cost  to  England  of  this  littie  conflict  was  no 
less  than  $1,085,000,000  * — or,  since  the  fighting  lasted 
two  years  and  nine  months,  almost  exactly  one  million 
dollars  per  day.  Inevitably,  the  collapse  in  foreign 
markets,  at  the  end  of  1899,  disconcerted  our  own 
financial  markets  also;  London's  panicky  recall  of 
capital  from  New  York  sent  the  Wall  Street  call-money 
rate  up  to  186  per  cent,  on  December  i8th.  Yet  it 
#as  in  this  very  situation  that  the  American  market 
came  to  Europe's  relief.  New  York  took  $28,000,000 
of  the  British  Exchequer  loan  of  August,  1900  2;  ap- 
J)lied  for  $150,000,000  of  the  loan  of  May,  1901,  and 
Secured  $100,000,000^;  it  subscribed  for  $80,000,000, 
t>r  one-half  of  the  loan  of  April,  1902.*  In  two  of  these 
loans,  American  banking  houses  dealt  directly  with 
the  British  Exchequer,  something  wholly  new  in  finan- 
cial history.  These  were  not  all  our  foreign  investments 
of  the  period.  The  German  Government  sold  us 
$20,000,000  of  its  new  bonds  in  1900,  and  we  lent 
some  $10,000,000  more  to  Continental  cities.  Yet 
the  "foreign  balance"  continued  to  accumulate.  At 
the  close  of  1900  it  was  estimated  by  international 
bankers  that  this  country  still  had  a  credit  fund  of  at 

•  Budget  speech,  Charles  T.  Ritchie,  Chancellor  of  the 
Exchequer,  April  23,  1903;  London  Economist,  May  9,  1903, 
p.  833. 

'  New  York  Financial  Chronicle,  Aug.  11,  1900,  p.  358. 

•  Ibid.,  May  4,  1901,  p.  844. 
*lbid.,  April  19,  1902,  p.  808. 


19001  ^  Remarkable  Situation  283 

least  $200,000,000   outstanding  on    Europe's   money 
markets. 

It  was  a  very  common  query  at  that  time,  in  financial 
circles,  what  was  to  be  the  outcome  of  this  unprece- 
dented situation.  Some  people  predicted  that  it  would 
mean  investment  of  our  overflowing  capital,  on  a  rapidly 
increasing  scale,  in  foreign  enterprises.  It  was  then 
that  the  prophecy  was  heard  that  New  York  was  des- 
tined to  displace  London,  if  it  had  not  already  dis- 
placed it,  as  the  financial  centre  of  the  world.  On  the 
other  hand,  the  Wall  Street  community,  which  took  the 
speculator's  view,  predicted  that  the  price  of  outstanding 
American  securities,  under  this  pressure  for  investment, 
would  rise  to  unheard-of  heights.  Neither  of  these 
things  happened  exactly  as  was  predicted,  but  what 
did  happen  was,  as  we  shall  presently  see,  quite  as 
startling  as  either  of  them. 


CHAPTER  XII 

THE  SPECULATIVE  MANIA  OF    IQOI 

THE  situation  in  which  the  American  community 
found  itself,  in  1901,  was  one  which  arises  at 
intervals  in  all  prosperous  modern  states;  but  its  char- 
acteristics were  emphasized,  on  this  occasion,  by  the 
unusual  incidents  of  the  period.  Such  a  situation  has 
invariably,  on  all  previous  occasions,  resulted,  first 
in  readiness  of  people  at  large  to  embark  in  all  sorts 
of  enterprises  the  wealth  whose  extent  they  have 
suddenly  come  to  realize,  and  next  in  a  rush  into 
speculation. 

This  is  a  very  old  story,  familiar  to  every  business 
man  and  student  of  economics.  It  describes  the 
financial  movement  between  1899  and  1901,  but  it 
describes  it  no  more  accurately  than  it  does  Germany's 
"industrial  boom"  of  1897  or  England's  "Kaffir 
craze"  of  1894  or  the  "railway  mania"  of  1844  or  the 
great  American  land  speculation  of  1836,  or,  for  that 
matter,  a  score  of  incidents  in  the  financial  history  of 
every  modern  state.  The  tracing  of  this  chapter  of 
causes  and   consequences    is,   however,  specially  in- 


1901]  The  Investment  Situation  285 

teresting  in  the  case  of  our  recent  financial  history, 
because  the  magnitude  of  the  forces  behind  the  great 
speculation  of  1901  was  quite  unparalleled. 

I  showed,  in  the  preceding  chapter,  to  what  extent 
the  prosperity  of  the  United  States,  and  its  rapid  accu- 
mulation of  new  capital,  had  progressed.  We  saw 
how  this  capital,  gathering  confidence  and  pressing 
on  all  investment  markets,  had  not  only  raised  prices  of 
our  own  securities  to  unexpected  heights,  and  bought 
back  from  Europe  the  bulk  of  American  investments 
in  foreigners'  hands,  but  had  overflowed  into  such 
quarters  as  British  consols  and  German  Treasury  bonds. 
But  after  all  this,  a  huge  credit  fund  was  still  left  unin- 
vested on  home  and  foreign  markets.  At  such  times, 
people  always  wonder  what  is  to  be  the  outcome,  and 
the  outcome  is  always  the  same.  The  public  has  the 
money,  and  is  eager  to  invest  it;  the  banking  com- 
munity provides  new  securities  as  a  field  for  such 
investment.  These  new  securities  may  be  good  or  bad, 
sound  or  fraudulent.  They  may  be  new  enterprises  or 
old  enterprises  recapitalized.  They  range  in  char- 
acter all  the  way  from  worthless  zinc  and  copper  mines, 
or  "syndicates"  promising  25  per  cent,  on  money  left 
in  their  hands  to  use  as  they  see  fit,  to  issues  of  refunding 
bonds  by  a  Government  in  high  credit.  All  of  these 
applicants  appeared  on  the  scene  in  1899  and  1900. 
But  the  great  banking  houses,  with  their  hand  on  the 
public  pulse,  concluded  that  this  was  mere  trifling 
with  the  resources  at  command.  The  reservoir  of 
American  capital  seemed  inexhaustible;  it  filled  up  on 


286  American  Finance  n90f 

one  side  faster  than  it  could  be  drained  into  these  various 
enterprises  on  the  other.  It  was  then  that  the  scheme 
of  recapitalizing  American  industry  was  conceived. 

Industrial  trusts  were  not  new  in  American  financial 
history;  we  have  seen,  in  a  preceding  chapter,  how 
far  the  movement  of  consolidation  had  progressed 
between  1887  and  1890.*  But  the  movement  had 
languished  after  the  second  of  those  years;  hard  times, 
low  profits,  and  distrustfulness  on  the  part  of  invest- 
ment capital  prevented  further  progress  between  1893 
and  1897;  financial  embarrassment  of  some  of  the 
trusts  already  in  existence  threw  doubt  on  other  propo- 
sitions of  the  sort. 2  But  the  prosperous  trade,  abundant 
capital,  and  overflowing  confidence  which  prevailed 
in  1899  had  created  a  new  situation.  The  promoter 
— a  name  which  now  grew  suddenly  familiar  on  all 
American  markets — asked  the  owners  of  a  dozen  or 
more  competing  plants,  in  a  given  industry,  to  name 
a  selling  price.  Naturally,  as  their  own  retirement 
from  business  was  involved,  the  price  the  owners  fixed 
was  high.  A  banking  syndicate  would  be  formed, 
however,  to  provide  the  money  requisite  for  the  pur- 
chase, and  for  a  handsome  payment  to  the  middleman. 
Thus  acquired,  the  manufacturing  plants  would  be 
combined  and  incorporated  under  the  name  American 
Milling  Company  or  United  States  Spinning  Company 
or  International  Weaving  Company,  and  the  stock 
would  be  offered  to  the  public. 

«  See  p.  118.  »  See  p.  188. 


19011  Company  Amalgamations  287 

As  it  turned  out  and  as  the  bankers  had  expected, 
the  public  was  in  exactly  the  mood  to  respond  to  the 
invitation.  The  shares  were  readily  absorbed;  other 
combinations  followed.  Still,  the  investment  fund 
showed  no  symptom  of  exhaustion.  Presently  the  more 
venturesome  spirits  among  promoters  began  to  combine 
these  already  large  industrial  combinations  into  a  single 
company,  and  to  sell  the  stock  of  that,  at  inflated 
valuations,  to  the  public.  This  would  have  been  a 
step  too  far,  but  for  the  fact  that  profits  of  manufacture, 
notably  in  the  steel  and  iron  trade,  went  on  increasing 
faster  than  promoters  could  turn  their  expectations 
into  stock.  One  conspicuous  expert  in  this  business, 
who  rose  from  the  sphere  of  travelling  salesman  pf  a 
wire-making  firm  to  the  leadership  of  a  great  combina- 
tion in  the  steel  trade,  was  asked  on  the  witness-stand, 
in  March,  1902,  to  describe  the  history  of  his  amalga- 
mations. They  began,  he  said,  by  the  combination 
of  seven  wire  factories  in  Illinois  into  one  corporation, 
which  was  called  the  Consolidated  Steel  and  Wire 
Company.  Two  months  later  this  company  was 
bought  up,  along  with  seven  more  mills,  by  the  American 
Steel  and  Wire  Company  of  Illinois,  which  issued 
$24,000,000  stock.  This  was  in  1898.  Early  in  1899 
he  organized  the  American  Steel  and  Wire  Company  of 
New  Jersey,  which  paid  $33,600,000  for  the  Illinois 
Company's  $24,000,000  stock,  added  eleven  other 
wire  plants,  and  issued  its  own  stock  in  the  comfortable 
sum  of  $90,000,000.  The  witness  was  asked  what  had 
become  of  $26,000,000  stock  whose  destination  was 


288  American  Finance  [1900 

not  accounted  for,  and  said  he  did  not  know.  *  One 
might  possibly  imagine  that  this  wholesale  "watering" 
of  capital  would  at  least  have  led  the  investing  public 
to  bid  a  low  price  for  the  inflated  stock;  but  it  did  not. 
Of  the  $90,ocx5,ooo  stock  thus  issued  in  the  above- 
described  "watering"  process,  $40,cxdo,ooo  was  pre- 
ferred as  to  dividend.  It  started  out  on  the  Stock 
Exchange  at  $94  per  share,  rose  in  two  months  to  $106, 
and  sold  at  $112  a  year  or  two  afterwards.  The 
$50,000,000  common  stock,  all  of  which  was  virtually 
given  away  as  a  bonus  in  the  "deal,"  started  at  $45 
per  share,  and  in  two  months  actually  rose  to  $92. 2 

This  was  a  fairly  typical  case.  How  far  this  move- 
ment of  incorporation  went  may  be  judged  from  the 
following  figures.  In  the  first  three  months  of  1899 
new  industrial  companies,  with  a  total  capitalization 
of  no  less  than  $1,586,000,000,  were  incorporated  in 
this  country.  2  During  the  full  year  1899  the  total 
rose  to  $3,593,000,000,  of  which  respectable  sum 
$2,354,000,000  was  the  common  stock,  which,  by  frank 
confession  of  promoters  then  and  afterward,  was 
simply  "water."*  We  have  already  seen,  however, 
how  seriously  the  investing  public  took  even  these 

»  Testimony  of  John  W.  Gates,  in  Parks  vs.  Gates,  New 
York  Supreme  Court,  March  i8,  1902;  New  York  Tribune^ 
March  19th;  New  York  Evening  Post  editorial,  March  19th. 

»  New  York  Financial  Chronicle,  Railway  and  Industrial 
Supplements,  1899,  1900,  andi9oi;  Ibid.,  Annual  Reviews 
of  1899  and  1900, 

» Ibid.,  April  8,  1899,  pp.  645-647.  , 

^  Ibid.i  March  ^4,  1900,  pp.  560-563. 


1899]  The  New  Industrial  Stocks  289 

common  shares.  They  did,  in  fact,  show  particular 
favor  to  them,  for  the  reason  that  the  relatively  lower 
price  of  common  shares  roused  the  bargain-counter 
instinct.  Furthermore,  in  the  immense  industrial 
expansion  of  the  period,  these  very  common  stocks, 
representing  the  inflated  capitalization  of  concerns 
which  in  not  a  few  cases  had  been  bankrupt  four 
or  five  years  before,  were  very  generally  receiving 
dividends.  * 

For  it  was  not  only  true  that  individuals,  in  the  flush 
of  material  prosperity,  were  buying  necessities  and 
luxuries  with  increased  freedom.  Even  in  this  direc- 
tion there  was  a  general  tendency  which  approached 
extravagance.  But  a  still  more  powerful  demand  came 
from  the  industries  themselves.  Iron,  for  instance, 
which  had  sold  for  $15.45  per  ton  in  the  autumn  of 
1894,  brought  $29.50  at  the  close  of  1899;  that  is  to 
say,  its  price  had  nearly  doubled,  and  such  a  market 
necessarily  brought  about  construction  of  new  plants 
and  enlargement  of  those  already  in  the  field.  Iron, 
for  such  construction,  was  bought  from  existing  mills. 
The  same  stimulus  ran  through  every  other  trade. 
An  extremely  large  demand  for  new  material  came  from 
railways,  which  had  to  carry  the  produce  of  the  farmers 
to  the  coast.  Naturally,  after  four  years  of  rigid 
cutting  of  expenses  under  receivers  in  bankruptcy,  the 
companies  were  in  no  condition  to  handle  easily  this 
enormous  trade  in  1897,  and,  as  their  profits  and  credit 

«  New  York  Financial  Chronicle,  Railway  and  Industrial 
Supplements,  1899  and  1900. 

It 


290  American  Finance  [i89* 

went  on  rising,  after  the  readjustment  of  their  financial 
status,  their  task  was  physical  reconstruction  of  the 
properties.  What  they  spent  on  this,  as  compared 
with  three  or  four  years  before,  may  be  judged  from  the 
new  railway  securities  which  were  sold  in  the  investment 
markets  to  procure  the  money.  In  1898  they  put  out 
$67,000,000  worth  of  stock  and  bonds,  mostly  for  such 
purposes;  in  1899,  $107,000,000;  in  1900,  $199,000,000; 
in  1 901,  $434,000,000;  and,  in  1902,  $527,000,000.^ 

It  must  not  be  supposed  that  this  series  of  amazing 
capital  flotations — ^to  use  a  barbarism  of  the  English 
market — was  placed  without  occasional  friction,  inter- 
ruption, or  inconvenience.  The  Spanish  War  arrested 
the  movement  in  1898.  It  was  checked  again,  in  the 
autumn  of  1899,  by  the  Transvaal  War  and  the  down- 
fall of  Germany's  industrial  speculation.  I  have 
shown  how  important  a  part  was  played  in  the  rise 
of  our  manufacture  and  export  of  steel  and  copper  by- 
this  European  boom.  Now  the  demand  from  that 
quarter  was  suddenly  cut  off.  Instead  of  inquiring 
urgently  for  our  manufactured  goods,  to  fill  a  demand 
which  its  own  mills  could  not  meet,  Europe  experienced 
so  sudden  a  collapse  in  its  home  demand  that  its  own 
manufacturing  plants  began  to  compete  with  one 
another  for  what  was  left  of  the  business,  and  to  cut 
prices  in  the  competition.  Our  markets  naturally 
felt  the  shock.  Early  in  1900  export  orders  decreased, 
and  there  began  a  great  decline  in  the  price  of  iron. 

<  Poor's  Manual  figures;  see  U.  S.  Statistical  Abstract  for 
1903.  P-  399- 


19001  Bryan  s  Second  Campaign  291 

This  last  phenomenon,  a  familiar  sign  of  trade 
reaction,  came  into  view  on  the  eve  of  another  Presi- 
dential contest,  when  Mr.  Bryan  forced  a  reluctant 
Democratic  convention  to  declare  for  the  second  time 
for  free-silver  coinage: 

We  reiterate  the  demand  [the  platform  announced]  for 
an  American  financial  system  made  by  the  American  people 
for  themselves,  which  shall  restore  and  maintain  a  bimetallic 
price  level,  and  as  part  of  such  a  system  the  immediate 
restoration  of  the  free  and  unlimited  coinage  of  silver  and 
gold  at  the  present  legal  ratio. » 

Hardly  was  this  demand  submitted,  however,  when 
it  was  seen  how  futile  a  political  expedient  it  was.  The 
gold  standard  was  already  embodied  in  law,  as  it  had 
not  been  in  1896,  and  the  victory  of  1896,  by  the  party 
proposing  such  enactment,  had  been  followed  by 
unprecedented  prosperity — most  conspicuous  in  the 
agricultural  communities  where,  four  years  before,  the 
demand  for  free-silver  coinage  had  been  intensified 
by  the  pressure  of  adversity.  Among  Mr.  Bryan's 
campaign  supporters,  the  argument  began  to  be  heard 
that  "the  silver  question  is  settled."  Bryan  himself, 
as  he  set  forth  on  his  personal  canvass  of  the  country 
in  the  autumn  of  1900,  was  constrained  by  visible 
demonstrations  of  opinion  to  abandon,  after  his  first 
few  speeches,  the  discussion  of  bimetallism,  and  to  revert 
to  denunciation  of  "  imperialism, "  as  exemplified  in  the 

« Democratic  National  Convention,  Kansas  City,  July 
5,  1900. 


292  American  Finance  tl900 

purchase  and  occupation  of  the  Philippine  Islands  by 
the  United  States. 

This  new  issue  had  the  effect  of  drawing  to  his  sup- 
port some  eminent  public  men  who  had  no  sympathy 
with  his  currency  theories,  but  who  felt  very  deeply  the 
perils  to  which  our  Government  was  committing  itself 
in  the  colonial  experiment.*  A  convention  of  the 
Anti-Imperialist  League,  meeting  at  Indianapolis  on 
August  i6th,  declared  that,  "without  regard  to  their 
views  on  minor  questions  of  domestic  politics,"  they 
proposed  to  "withhold  their  votes  from  Mr.  McKinley 
in  order  to  stamp  with  their  disapproval  what  he  has 
done,"  and  they  advised  "direct  support  of  Mr.  Bryan 
as  the  means  of  crushing  imperialism. "  The  Populist 
Party,  in  a  convention  held  May  loth  at  Sioux  Falls, 
South  Dakota,  had  already  nominated  Bryan  on  the 
basis  of  a  demand  "for  the  reopening  of  the  mints  of 
the  United  States  for  the  free  and  unlimited  coinage 
of  silver,"  and  the  Silver  Republican  party,  convening 
in  Kansas  City,  July  6th,  gave  the  same  endorsement  on 
the  same  grounds. 

All  this  was  futile.  The  Populists  themselves  could 
not  hold  their  party  in  line.  On  the  day  when  the 
fusion  wing  of  their  organization  nominated  Bryan 
at  Sioux  Falls,  the  Anti-Fusionists  or  "middle-of-the- 
road  Populists"  met  at  Cincinnati,  declared  for  "a 
scientific  and  absolute  paper  money,  based  upon  the 

»  E.  M.  Shepard,  statement  of  Aug.  15,  1900.  Carl  Schurz, 
letter  to  L.  J.  Gage,  Sept.  3.  Charles  R.  Codman,  speech  at 
Indianapolis  Convention,  Aug.  16. 


1900]  Political  Confusion  293 

entire  wealth  and  population  of  the  nation,  not  re- 
deemable in  any  specific  commodity,  but  made  a  full 
legal  tender  for  all  debts,"  and  selected  independent 
candidates.  A  faction  of  the  Anti-Imperialist  party 
broke  away  from  the  Indianapolis  nominations,  and 
made  at  New  York,  on  September  5th,  an  attempt  to 
name  another  candidate  than  either  Bryan  or  Mc- 
Kinley.  The  Gold  Democracy,  which  had  fought 
an  independent  battle  in  1896,  adopted  at  Indianapolis, 
July  25,  1900,  a  series  of  resolutions  urging  voters 
"  not  to  be  deceived  by  the  plea  that  the  money  question 
has  been  finally  settled,"  declaring  it  "dangerous  to 
elevate  to  executive  power  any  one  hostile  to  the  main- 
tenance" of  the  gold  standard  act,  and  advising  against 
a  vote  for  Mr.  Bryan.  From  this  singular  clashing  of 
political  ideas,  stood  forth  the  one  salient  fact  that  the 
voters  were  satisfied  with  the  existing  status  and  with 
the  new  gold  standard  law,  and  wanted  no  more  experi- 
ments. The  vote  of  November  left  no  further  doubt 
upon  the  subject.  McKinley's  majority  in  the  electoral 
college  rose  from  the  95  votes  of  1896  to  137  in  1900;  his 
plurality  on  the  popular  poll  increased  from  602,555 
to  864,688.  Bryan,  who  had  carried  22  states  in  1896, 
carried  only  17  in  1900. 

That  industry  and  finance  should  have  halted,  under 
the  double  influence  of  the  collapse  of  the  foreign 
market  for  our  exports  and  the  vicissitudes  of  the 
presidential  campaign,  was  entirely  natural.  But  the 
country's  real  prosperity,  its  accumulation  of  fresh  cap- 
ital, had  not  been  arrested  even  momentarily.     News 


294  American  Finance  [1901 

of  the  Waterloo  of  the  free-silver  coinage  party  found 
its  immediate  reflection  on  the  Stock  Exchange;  it  was 
the  political  side  of  things  which  served  to  fire  the 
imagination,  ateady  brought  to  a  pitch  of  no  little 
excitement  by  the  spectacle  of  the  country's  enormous 
economic  power.  From  this  mixture  of  causes  followed 
very  rapidly  what  may  be  described  as  the  explosion 
of  speculation  at  the  beginning  of  1901, — a  period 
which  will  possibly  have  as  conspicuous  a  place  in  the 
curious  reminiscences  of  finance  as  the  South  Sea 
Bubble  of  1720  and  the  railway  craze  of  1844.  Its 
underlying  causes  were,  indeed,  identical  with  the 
causes  of  those  older  episodes;  the  principal  phenomena 
of  each  were  the  immense  amount  of  new  stock  issued, 
the  eagerness  of  the  public  to  buy  it,  and  the  rapidity 
with  which  people  who  bought  found  the  value  of  their 
holdings  rising.  The  situation  of  1901  was  one  which 
turned  men's  heads.  The  country  seemed  to  have 
reached  a  pinnacle  of  prosperity  from  which  nothing 
could  dislodge  it.  The  profits  of  our  incorporated 
enterprises  seemed  to  have  no  assignable  limit.  Amer- 
ican capital  pressed  upon  every  avenue  of  investment. 
The  most  reckless  and  foolish  speculation  was  apt 
to  achieve  success.  Looking  at  the  matter  philosoph- 
ically, there  need  be  no  wonder  that  the  word  went 
forth,  in  financial  circles  previously  noted  for  con- 
servatism, that  old  precedents  of  finance  were  obsolete, 
that  it  was  no  longer  necessary  to  judge  the  present 
and  future  by  the  past. 
The  climax  of  this  great  speculation  came  from  a 


19011  Stock  Exchange  Excitement  295 

peculiar  cause,  which,  I  think,  we  shall  understand  in 
the  light  of  what  we  have  already  considered,  but  which 
the  investing  public  of  that  day  did  not  understand 
at  all.  It  became  evident,  at  the  close  of  1900,  that 
something  more  than  buying  by  investors  was  at  work 
in  the  Stock  Exchanges.  On  one  stock  after  another, 
a  buying  movement  would  converge  which  seemed  to 
be  utterly  indifferent  to  prices,  and  which  was  accom- 
panied by  trading  of  quite  unexampled  volume.  It 
was  presently  evident  that  what  was  going  on  was  the 
purchase,  at  extravagant  prices,  of  a  controlling  interest 
in  the  shares  of  railway  and  industrial  companies.  The 
public  inferred,  from  what  it  saw,  that  these  purchases 
were  being  made  on  their  own  account  by  men  of 
boundless  wealth,  who  were  merely  investing  their 
private  capital.  Such  a  supposition  naturally  drew 
the  investing  public  into  the  whirl  of  speculation:  first, 
in  order  to  make  its  own  investments  before  prices 
should  go  beyond  its  reach;  second,  in  the  hope  of 
selling  out  at  the  much  higher  prices  which  the  rich 
men's  purchases  were  expected  to  bring  about. 

But  the  public  was  wholly  mistaken  as  to  the  nature 
of  the  movement.  What  actually  was  happening  was 
this.  People  connected  with  one  corporation  would 
borrow  large  sums  of  money,  and  use  that  money  to 
buy  up  shares  of  another  subsidiary  or  competing 
corporation.  They  were  buying,  however,  not  for 
themselves,  but  for  the  company  with  which  they  were 
identified;  and  their  purpose  was,  as  soon  as  the  property 
had  been  obtained,  to  hand  it  over,  issue  new  stock 


296  American  Finance  [1901 

or  bonds  of  their  own  corporation,  sell  such  securities 
to  the  public,  and  use  the  proceeds  to  reimburse  them- 
selves, with  a  handsome  bonus.  There  was  the  famous 
case,  for  instance,  of  the  Chicago,  Burlington  & 
Quincy  Railway.  This  company's  stock,  amounting 
to  $110,000,000,  sold  at  the  end  of  1900  for  $144  per 
share,  which  was  considered  by  most  people  rather 
high.  People  identified  with  the  Northern  Pacific 
Railway  bought  up  the  stock  at  a  seemingly  reckless 
rate,  pushed  up  its  price  above  $180,  and  then  an- 
nounced that  a  bond  would  be  issued  by  the  Northern 
Pacific  and  Great  Northern  Companies  to  pay  $200  a 
share  for  the  whole  of  the  Burlington  stock.  These 
bonds  were  later  sold  on  the  open  market,  the  result, 
of  course,  being  that  the  supply  of  securities  on  the 
market  was  increased  by  some  $50,000,000. 

The  same  process  occurred  in  half  a  dozen  other 
railways,  the  usual  expedient  being  the  issue  of  what 
was  now  called  a  "collateral  trust  bond."  Stock  of 
another  company — sometimes  all  of  it,  sometimes  a 
bare  majority — was  bought  for  a  corporation.  That 
corporation  thereupon  issued  bonds  for  the  cost  of 
purchase;  but  those  bonds,  instead  of  being,  like  other 
mortgage  issues,  a  lien  on  the  franchise  and  road-bed 
of  the  issuing  company,  were  merely  secured  by  pledge 
of  the  stock  which  had  been  bought.  When  it  was 
found  that  the  public  readily  bought  these  bonds,  the 
device  was  followed  by  another,  not  altogether  new, 
but  never  before  applied  on  such  a  scale.  A  company 
would  be  chartered  for  no  definite  purpose  except  to 


I901J        The  Billion-dollar  Steel  Trust        297 

hold  the  shares  of  other  companies.  Having  bought 
up  these  shares  or  acquired  them  through  exchange,  it 
issued  its  own  stock  to  foot  the  bill.  The  public 
bought  this  stock,  as  it  had  bought  the  collateral  trust 
bonds,  and  there  seemed  no  limit  to  the  scope  of  the 
operation.  It  was  then  that  Mr.  Morgan,  during 
March,  1901,  formed  his  "billion-dollar  steel  trust." 

The  idea  of  such  a  combination  had  been  thrown  out, 
in  a  tentative  way,  by  the  promoters  of  1899,  and  had 
been  discussed  as  the  dream  of  excited  brains.  During 
1900,  however,  as  we  have  seen,  the  price  of  iron  and 
steel  had  fallen,  and  the  status  of  the  numerous  over- 
capitalized steel-making  corporations  which  had  come 
\nto  the  field  began  to  be  tested.  Some  of  them  had 
to  cut  their  dividends,  and  on  top  of  this,  the  most 
powerful  steel-manufacturer  in  the  field,  Mr.  Andrew 
Carnegie,  announced  his  purpose  of  building  new 
competitive  mills  and  starting  production  of  kinds  of 
material  which  the  new  trusts  of  1899  had  thus  far 
mainly  monopolized.  Consternation  followed  among 
the  financial  magnates  who  had  been  building  up  the 
enormously  capitalized  steel  trade  combinations,  and 
who  had  other  plans  in  view,  whose  success  was  bound 
up  with  resumption  of  the  "boom"  on  the  Stock 
Exchange.  Mr.  J.  P.  Morgan,  the  acknowledged 
leader  of  the  Wall  Street  consolidation  movement,  then 
opened  negotiations  with  Carnegie. 

Andrew  Carnegie  was  a  different  proposition  from 
the  small  manufacturers  who  had  been  bought  out  in 
the  consolidations  of  1899.    He  had,  it  is  true,  himself 


298  American  Finance  [1901 

proposed,  as  early  as  1889,  to  sell  out  to  an  English 
syndicate,  and  as  late  as  1899  had  considered  a  pro- 
position of  American  promoters  to  pay  $250,000,000 
for  the  steel  property  of  himself  and  his  associates; 
but  the  negotiations  came  to  nothing.  *  Between  1889 
and  1897,  moreover,  the  net  annual  profits  of  the  Car- 
negie properties  rose  from  $3,540,000  to  $7,000,000, 
and  from  the  latter  figure  they  had  risen  by  1900  to  no 
less  than  $40,000,000.2  of  the  160,000  shares  of 
stock  in  the  company,  Carnegie  himself  owned  86,382; 
of  the  $160,000,000  bonds,  he  personally  held  $88,- 
147,000.  ^  He  was  the  key  to  the  steel  trade  problem 
and  he  knew  it.  Mr.  Morgan  obtained  conditional 
assent  from  the  eight  other  most  powerful  steel  trade 
combinations  to  be  merged  into  one  huge  "holding 
company,"  through  exchange  of  stock;  Mr.  Carnegie 
laid  down,  as  his  individual  terms,  the  purchase  of 
Carnegie  Company  stock  at  $1500  per  share,  paid  in 
5  per  cent,  bonds  secured  by  the  stocks  of  all  the  amal- 
gamated corporations,  and  the  exchange  of  Carnegie 
Company  bonds  at  par  for  the  same  security.*  This 
meant  the  payment  of  $217,720,000  to  Carnegie  him- 
self. The  extraordinary  price  was  granted;  his  part- 
ners were  bought  out  on  somewhat  less  favorable  terms  s ; 
and  to  buy  up  his  company  and  its  competitors,  the 

»  Bridge,  Inside  History  of  the  Carnegie  Steel  Company,  pp. 
«93  and  305. 
» Ibid.,  p.  295. 

*  Ihid.,  p.  356. 

♦  Ibid.,  p.  364. 

» Ibid.,  pp.  363,  364. 


1901]         *^ Steel  Stock^'  on  the  Market         299 

United  States  Steel  Corporation  was  organized  in 
February,  1901,  with  a  capital  stock  of  $i,oi8,ooo,ocx) 
and  bonds  of  $301,000,000.  The  other  combinations 
in  the  trade,  whose  individual  capitalizations  ranged 
from  the  $33,000,000  of  the  Steel  Hoop  company  to  the 
$99,000,000  of  the  Federal  Steel,  received  the  new 
shares  on  a  basis  running  from  equal  exchange  to 
125  per  cent,  of  their  old  outstanding  capital,  ^  and  the 
"deal"  was  closed. 

It  remained  to  see  how  the  new  stock  could  be  floated; 
for  although  in  form  the  operation  was  nothing  but  sub- 
stitution of  new  securities  for  old,  in  fact  it  was  some- 
thing very  dififerent.  Displacement  of  capital  on  an 
enormous  scale  was  certain  to  result  The  beneficiaries 
ol  this  remarkable  operation  could  be  counted  on  to 
turn  a  part  of  their  new  stock  into  cash,  and  a  very 
substantial  portion  of  the  Steel  Corporation's  stock 
was  to  be  used  for  procuring  working  capital.  2  The 
promoters  took  no  chances  which  they  could  avoid, 
A  bankers'  syndicate  was  formed  to  guarantee,  up  to 
$200,000,000,  the  successful  floating  of  the  stock;  it 
actually  put  up  $25,000,000  cash.3  Brokers,  large  and 
small,  were  engaged  to  urge  the  new  stock  upon  in- 
vestors throughout  the  United  States.  On  the  Stock 
Exchange,  a  celebrated  manipulator  of  speculative 
values  was  employed,  when  the  shares  were  listed, 

>  Official  Circular  of  J.  P.Morgan  &  Co.,  March  2,  ^901; 
New  York  Financial  Chronicle,  March  2,  1901,  p.  441. 
^Ihid. 
1  /&(c{., March  2,  1901,  p.  441;  March  9,  p.  483. 


300  American  Finance  [1901 

to  create  a  semblance  of  great  investment  activity,  and 
to  sustain  the  price.  The  project  met  with  remarkable 
success.  Starting  on  the  curb  at  a  price  of  38  for  "  Steel 
common"  and  %2\  for  the  7  per  cent.  "Steel  preferred," 
the  Stock  Exchange  price  advanced  in  a  month  to 
55  and  ioi|  respectively.  Half  a  million  of  the  shares 
were  dealt  in  during  the  first  two  days  of  their  appear- 
ance on  the  Stock  Exchange;  the  next  week's  record 
was  a  million.  The  greater  part  of  this  was  doubt^ 
less  merely  "matching  of  orders"  by  the  syndicate's 
agent,  through  the  medium  of  other  brokers;  but 
the  public  did  not  know  this.  It  caught  the  specu- 
lative fever;  even  in  thrifty  Western  towns  and  New 
England  country  villages,  the  gossip  of  an  evening 
was  apt  to  concern  itself  with  "Steel."  So  success- 
ful was  the  operation  that,  a  year  or  two  later,  the 
$25,000,000  "underwriting  syndicate"  received  back 
in  cash  its  whole  subscription,  plus  200  per  cent,  in 
dividends.  ^ 

The  outburst  of  speculation  during  April,  1901,  was 
something  rarely  paralleled  in  the  history  of  specu- 
lative manias.  Not  only  did  the  younger  men  who  had 
sold  out  to  the  Steel  Corporation,  now  made  into  many 
times  millionaires  almost  overnight  and  bewildered 
by  their  extraordinary  fortune,  toss  into  stock  market 
ventures  the  money  which  they  saw  no  other  way  of 
using,  but  old  and  experienced  capitalists  lost  their 
heads,   asserted   publicly   that   the   old   traditions   of 

*  Financial  Chronicle,  May  2,  1903,  p.  977. 


1901]       Wild  Speculation  by  the  Public      301 

finance  no  longer  held  and  that  a  new  order  of  things 
must  now  be  reckoned  with,  and  joined  the  dance. 
The  "outside  public,"  meantime,  seemed  to  lose  all 
restraint.  A  stream  of  excited  customers,  of  every 
description,  brought  their  money  down  to  Wall  Street, 
and  spent  their  days  in  offices  near  the  Stock  Exchange. 
Two  or  three  years  before,  it  was  called  a  good  day's 
business  when  400,000  shares  of  stock  changed  hands 
on  the  Exchange.  In  April,  1901,  the  daily  record  rose 
to  a  million  shares,  to  two  million,  and  finally,  on  April 
30th,  to  three  million  and  a  quarter.  Estimating  the 
average  price  of  stocks  at  that  period  at  $60  per  share, 
— an  inside  figure, — it  will  be  seen  that  the  3,200,000 
shares  of  April  30th  meant  that  from  some  quarter 
$192,000,000  worth  of  stocks  were  bought.  The  mere 
posting  of  this  enormous  business  compelled  commis- 
sion houses  to  keep  their  office  forces  working  into  the 
small  hours  of  the  night.  Execution  of  the  orders  on 
the  floor  of  the  Stock  Exchange,  under  the  prevalent 
conditions  of  excitement,  so  manifestly  threatened 
physical  break-down  of  the  brokers  that  the  governing 
committee  took  the  quite  unprecedented  step  of  declar- 
ing an  extra  Stock  Exchange  holiday  to  give  the  mem- 
bership a  rest.  ^  The  newspapers  were  full  of  stories 
of  hotel  waiters,  clerks  in  business  offices,  even  door- 
keepers and  dressmakers,  who  had  won  considerable 
fortunes  in  their  speculations.  The  effect  on  the 
public  mind  may  be  imagined. 

•New  York  Evening  Post  editorial,  May  3,   1901;  Finan' 
cial  Chronicle,  May  ii,  p.  903, 


302  American  Finance  [1901 

While  this  was  going  on,  promoters  were  busy  with 
projects  as  daring,  in  their  way,  as  the  steel  amalga- 
mation. The  phrase,  "  thinking  in  hundred  millions, " 
which  had  its  origin  in  that  period,  fairly  describes 
the  state  of  things.  Bankers  in  high  standing  asked 
and  received  commissions  as  high  as  five  million  dollars 
for  managing  some  of  these  operations,  and  still  the 
original  proprietors  who  sold  out  to  the  combinations 
received  prices  of  which  they  had  never  dreamed. 
The  bankers  who  had  successfully  carried  through 
the  steel  amalgamation  entered  new  fields  of  experi- 
ment. Starting  with  two  transatlantic  steamship  lines 
which  were  owned  by  American  investors,  they  under- 
took to  merge  into  one  huge  holding  company  all  the 
competing  foreign  lines.  The  German  companies, 
after  some  tentative  negotiation,  withdrew,  and  hasty 
counter-propositions  by  the  British  Government  caused 
the  Cunard  Line  to  break  off  negotiations.  ^  When, 
however,  control  of  such  old  English  enterprises  as  the 
White  Star  and  Leyland  lines  was  secured,  partly  for 
cash  and  partly  through  the  $112,000,000  stock  and 
$50,000,000  bonds  of  the  International  Mercantile 
Marine,  an  angry  outcry  arose  in  England.  London 
itself  shared  in  the  notion,  which  the  American  press 
and  public  adopted  on  the  spot,  that  we  were  using 
our  boundless  resources  of  capital  to  snatch  away 
Great  Britain's  supremacy  of  the  seas.     Neither  party 

«  London  Economist,  May  25,  1901,  p.  779;  Nov.  16,  1901, 
-p.  1701;  April  26,  190a,  pp.  645  and  653;  May  3,  1902,  p.  690; 
May  31,  190a,  p.  856. 


1901]  Morgan  and  Harriman  303 

could  foresee  the  time,  not  very  distant  even  then, 
when  the  English  interests  which  had  sold  out  for 
cash  to  the  Wall  Street  promoters  would  buy  back 
control  of  the  whole  unwieldy  combination  for  one- 
third  or  one-fourth  of  the  price  paid  originally  by 
the  Americans.  Yet  even  in  the  face  of  the  popular 
clamor  in  England  during  1901,  the  chairman,  at 
the  ensuing  annual  meeting  of  the  Leyland  Com- 
pany, flatly  told  the  shareholders  that  the  ofifer  made 
was  so  extravagant  that  no  management  had  a  right 
to  refuse  it.  "The  vendors,"  wrote  a  high  authority 
in  the  British  shipping  trade,  "made  an  exceptionally 
good  bargain,  which  it  is  probable  the  purchasers 
will  soon  find  out. "  ^ 

Both  at  home  and  abroad,  cool-headed  criticism 
of  this  nature,  on  the  American  amalgamations,  was 
occasionally  heard,  and  in  fact,  a  process  of  this  sort 
was  merely  riding  for  a  fall — if  for  no  other  reason,  then 
for  the  reason  that,  in  the  prodigious  inflation  of  values 
which  prevailed,  the  resources  of  capital  and  credit 
must  eventually  be  exhausted.  This  had  been  the 
unvarying  teaching  of  that  economic  law  and  ex- 
perience which  the  great  promoters  of  1901  were  re- 
pudiating. But  their  contempt  of  the  warnings  of  the 
past  was  itself  a  familiar  symptom  of  a  great  speculative 
mania.  It  usually  happens,  in  such  episodes,  that  the 
reckoning  comes  from  an  unexpected  cause;  also  that 
it  comes  at  the  moment  when  the  public  and  the 
speculators  have  reached  the  conclusion  that  it  can 

>  Annual  Shipping  Review  for  1901,  John  White,  London. 


304  American  Finance  ti90i 

never  come.  Both  turned  an  absolutely  deaf  ear  in  1901 
to  financial  warnings,  and  to  the  aspirations  of  the 
financiers  themselves  there  seemed  to  be  no  limit. 
It  was  the  very  next  move  of  the  Wall  Street  promoters, 
however,  which  brought  about  the  crash. 

I  have  already  noticed  the  operation  whereby  the 
Chicago,  Burlington  &  Quincy  Railway  was  bought 
up  by  the  Northern  Pacific,  and  the  Great  Northern. 
Now  the  Burlington  was  more  useful  as  a  feeder  and 
more  dangerous  as  a  competitor  to  the  Union  Pacific 
Railway  than  to  either  of  these  two  buyers.  The 
Union  Pacific  asked  to  participate  in  the  Burlington 
purchase,  but  the  request  was  refused.  What  the 
Union  Pacific  management  then  did  was  to  start  in  to 
buy  control  of  the  Northern  Pacific  itself  on  the  open 
market.  The  Northern  Pacific  management  dis- 
covered what  was  under  way,  and  proceeded  to 
strengthen  its  own  holdings  of  the  stock.  In  this 
fight  for  ownership  of  a  $155,000,000  corporation,  Mr. 
J.  P.  Morgan  and  Mr.  E.  H.  Harriman  were  brought 
first  into  financial  collision.  Mr.  Morgan,  then  at 
the  pinnacle  of  his  prestige,  with  the  billion-dollar 
steel  amalgamation  just  achieved,  and  wielding  a 
personal  authority  and  power  which  made  his  will  the 
law  with  a  good  part  of  Wall  Street's  capitalists  and 
institutions,  represented  the  controlling  interest  in 
Northern  Pacific.  His  adherents,  among  whom  Mr. 
James  J.  Hill  of  the  Great  Northern  was  the  most 
important,  did  not  own  a  clear  majority  of  the  stock,  but 
their  financial  resources,  and  the  credit  which  they  were 


1901]        The  Northern  Pacific  Corner        305 

able  to  command  in  this  country  and  in  Europe,  were 
now  utilized  to  make  that  control  secure.  Mr.  Harri- 
man,  a  younger  man,  with  a  genius  both  for  railway 
management  and  for  stock  speculation,  was  in  full 
control  of  the  Union  Pacific  Railway  Company,  and 
was  aflSliated  with  a  body  of  immensely  wealthy  capi- 
talists known  as  the  "Standard  Oil  group."  Both 
Morgan  and  Harriman  were  men  of  determination  and 
resource,  but  Harriman  fought  his  battle  more  ag- 
gressively. His  task,  in  acquiring  upwards  of  $77,- 
000,000  Northern  Pacific  stock,  was  in  fact  considerably 
greater  than  Morgan's,  because  he  had  no  such  sub- 
stantial holdings  to  start  with  as  the  Morgan  interest 
held.  He  surmounted  this  handicap  by  daring  use  of 
the  Union  Pacific's  credit.  The  shareholders  had 
voted  the  Union  Pacific  management  borrowing 
powers  which  amounted  almost  to  carte-blanche  in 
the  money  market,  and  in  those  days  of  easy  credit 
and  accommodating  banking  syndicates,  the  powers 
had  been  so  used  as  to  accumulate  a  great  reserve  of 
cash.  A  subsidiary  company,  the  Oregon  Short  Line, 
was  equipped  by  the  Union  Pacific,  in  return  for 
certificates  of  indebtedness,  with  funds  to  buy  up 
$78,000,000  Northern  Pacific  stock,  ^  and  with  these 
resources  its  brokers  entered  the  excited  Wall  Street 
market. 

The  resultant  situation  was  finance  run  mad.    It 
was  too  much  for  Europe,  whose  banking  houses  had 

1  Union    Pacific    Railroad    Company' s    Fourth    Annual 
Report,  1901,  pp.  5  and  19. 


3o6  American  Finance  [1901 

been  lending  freely  to  the  great  American  promot- 
ers, but  which  now  began  to  take  in  sail.  Paris 
bankers  at  once  stopped  further  advances;  the  Bank 
of  England  called  the  London  joint-stock  banks 
together  to  warn  them  against  New  York.  *  The 
contest  for  Northern  Pacific,  however,  did  not  slacken. 
As  the  stock  rose  from  no  to  more  than  200,  inter- 
national bankers  sold  heavily — borrowing  stock  for 
delivery,  to  be  replaced  by  the  real  foreign  shares  on 
the  way  from  London — ^and  speculators  for  the  decline 
sold  still  more  largely,  in  expectation  of  a  break  on 
which  they  could  buy  in  at  lower  prices  to  close  out 
their  contracts.  But  they  misunderstood  the  situation. 
The  rival  bidders,  as  it  happened,  were  bent,  not  on 
taking  profits  in  the  rise,  but  on  obtaining  and  locking 
up  the  actual  shares.  On  the  9th  of  May,  it  was  sud- 
denly discovered  that  deliveries  of  more  Northern 
Pacific  stock  had  been  thus  contracted  for  than  could 
be  bought  or  borrowed.  The  $155,000,000  stock  was 
cornered.  Its  price  went  up  in  an  hour  from  160  to 
1000;  for,  naturally,  enforcement  of  the  contracts  of 
sale  meant  ruin  for  the  seller,  and  the  scramble  of 
cornered  brokers  to  protect  themselves  was  instan- 
taneous. While  this  was  happening  to  Northern 
Pacific  stock,  all  other  stocks  broke  violently,  declines 
of  50  per  cent,  or  more  occurring  in  many  of  the  sound- 
est shares.  It  was  admitted,  afterward,  that  on  the 
books  of  the  lending  banks,  and  on  the  basis  of  the 

>  London  financial  correspondence,  New  York  Evening  Post, 
May,  1901. 


1901)  Wall  Street* s  Reckoning  307 

day's  low  prices  for  collateral  pledged  against  stock 
exchange  loans,  a  good  part  of  Wall  Street  was  for  a 
couple  of  hours  technically  insolvent. 

The  crisis  itself  passed  over  when  the  two  rival 
bidders,  their  hands  forced  by  the  disastrous  results 
which  their  quarrel  had  invoked,  came  together  and 
agreed  on  conditions  which  would  relieve  the  victims 
of  the  corner;  but  the  spell  was  broken.  The  specu- 
lating public  had  learned  a  lesson,  and  it  was  destined 
to  learn  still  more  as  to  the  real  nature  of  the  "  boom  of 
1901"  before  the  episode  was  ended.  Much  of  the 
public's  infatuation  had  been  based  on  the  enormous 
and  accumulating  "foreign  credit  balance"  of  the 
country  which  had  been  estimated,  a  year  before,  at 
not  less  than  $200,000,000.  By  the  middle  of  1901 
it  was  figured  out  by  competent  experts  that  not  only 
had  this  great  credit  been  entirely  wiped  out  by  the 
drafts  of  our  banking  houses,  but  that  a  floating  debt 
to  Europe,  footing  up  nearly  as  much,  had  been  created. 
Our  bankers  had,  in  fact,  borrowed  heavily  in  London, 
Paris,  Berlin,  Amsterdam,  and  even  in  the  poorer 
European  markets,  like  Vienna.  *  These  loans,  as  they 
matured,  were  called  in  by  the  lenders,  and  in  the 
harvest  months  of  1901,  when  gold  ought  to  have  been 
flowing  towards  this  country,  the  United  States  shipped 
$25,000,000  gold  to  Europe.  One  of  the  largest  of  the 
new  trade  combinations,  the  $155,000,000  Amalga- 
mated Copper  Company,  had  been  holding  the  market 

«  A.  Raffalovich,  March4  Financier,  Paris,  1903. 


3o8  American  Finance  11903 

for  that  metal  at  an  artificial  price;  in  the  autumn  of 
1 901,  it  lost  its  market,  copper  fell  from  16  cents  a 
pound  to  II,  and  the  "holding  company"  had  to  cut 
its  annual  dividend  from  8  per  cent,  to  2.  At  the 
height  of  the  April  speculation.  Wall  Street  had  dis- 
missed warnings  of  possible  agricultural  disaster  with  the 
reply  that  the  country  no  longer  depended  on  agricul- 
ture. Nature's  response  was  a  summer  of  scorching 
drought  in  the  corn-belt,  similar  to  that  of  1894,  as  a  re- 
sult of  which,  the  corn  crop  of  1901  was  cut  down  28  per 
cent,  from  the  year  before,  its  yield  being,  except  for 
1894,  very  much  the  smallest  in  eleven  years.  Only  the 
good  fortune  of  a  "  bumper  "  wheat  crop,  in  a  year  of  par- 
tial European  shortage,  saved  our  export  trade  of  1901. 
The  reaction  from  the  excesses  of  1901  continued 
during  the  two  ensuing  years;  for  although  speculation 
again  grew  rampant  in  1902,  with  resumption  of  pro- 
moters' activities  and  stock-jobbing  exploits,  the  signs 
of  public  abstention  and  over-strained  credit  were 
visible  throughout  the  year.  With  the  autumn,  a 
severe  money  squeeze  was  the  sequel  to  the  activities 
of  the  speculators,  and  the  year  1903  began  with  evi- 
dence that  the  "underwriting  syndicates,"  which  had 
guaranteed  the  numerous  Wall  Street  promotions  of 
the  two  preceding  years,  were  caught  in  a  trap.  Banks 
which  had  loaned  them  money  began  to  force  a  settle- 
ment. The  stocks  which  they  held  had  for  some  time 
been  popularly  known  as   "undigested   securities,"* 

«  Interview  with  J.  P.  Morgan,  New  York  Times,  March  31, 
1903. 


1903]  The  "Rick  Metis  Panic"  309 

showing  that  the  public  understood  the  situation. 
A  little  later  on  it  was  James  J.  Hill,  the  author  of  the 
"Burlington  deal,"  who  suggested  the  term  "indi- 
gestible securities. "  ^  The  syndicates  began  by  selling 
their  reserve  investments  of  older  high-grade  stocks 
and  bonds,  and  the  market  broke  under  their  sales. 
Some  of  these  syndicates,  fairly  forced  to  the  wall,  next 
threw  on  the  market  the  underwritten  securities,  to 
get  what  they  could  get  for  them. 

They  got  very  little,  for  along  with  this  heavy  selling 
came  news  most  disquieting  to  investors.  The  hastily 
capitalized  industrial  corporations  themselves  began 
to  raise  signals  of  distress.  For  one  thing,  their  or- 
ganizers had  calculated,  in  the  careless  and  easy  op- 
timism of  the  day,  that  the  amalgamated  concerns 
could  themselves,  when  they  needed  working  capital, 
procure  it  from  the  banks,  as  the  individual  manu- 
facturers had  done  before.  They  were,  however, 
wholly  mistaken,  having  quite  overlooked  the  fact 
that  discount  of  one  manufacturer's  paper  by  a  neigh- 
boring bank,  familiar  with  his  character,  history,  and 
business  methods,  is  a  very  different  matter  from  dis- 
counting the  paper  of  a  company  formed  through  buying 
out  ten  such  manufacturers.  This  new  concern  must 
ask  for  ten  times  as  much  on  its  individual  note,  and  it 
must  do  so  when  its  character  remains  to  be  determined, 
when  its  history  has  just  begun,  and  when  its  methods 
are  either  unknown,  or  actually  (as  was  the  case  with 

'Interview  at  St.  Paul,  Minn.,  July  19,  1903. 


3IO  American  Finance  U903 

more  than  one  new  "industrial"  in  1903)  open  to  grave 
suspicion.  But,  even  had  these  new  concerns  been 
most  unexceptionable  borrowers,  the  banks,  with  the 
European  repayments  and  the  syndicate  loans  upon 
their  hands,  were  in  no  condition  to  oblige  them. 
Some  of  the  combinations,  like  the  New  England 
Cotton  Yarn,  which  had  been  paying  7  per  cent,  divi- 
dends, called  a  cash  assessment  from  their  shareholders. 
The  great  steel  corporation  stopped  dividends  on  its 
common  stock,  which  had  been  paid  since  the  company 
was  organized,  and  with  the  subsequent  fall  in  prices 
of  its  shares,  the  market  valuation  of  the  stock,  which 
had  been  $785,000,000  in  1901,  went  actually  in  1903 
to  $350,000,000. 

Other  smaller  combinations  followed  its  example. 
The  Consolidated  Lake  Superior,  a  $100,000,000  iron 
trade  combination,  which  had  paid  7  per  cent,  divi- 
dends on  its  stock,  up  to  the  preceding  December, 
went  suddenly  into  bankruptcy.  The  United  States 
Shipbuilding  Company,  which  sold  its  bonds  on  the 
assurance  that  foreign  investors  were  buying  both 
them  and  its  $50,000,000  stock,  was  placed  in  the  hands 
of  receivers,  with  an  exposure  of  humbug  which  was 
little  less  than  farcical.  Its  promoters  had  never  even 
approached  great  foreign  bankers,  but  had  been  dealing 
with  needy  adventurers  around  the  Bourse  who  had 
not  the  money  to  equip  a  mill.  In  the  unsettlement 
of  public  confidence,  there  was  even  a  run  on  financial 
institutions,  and  serious  bank  failures  in  two  or  three 
smaller  cities. 


1903J        Roosevelt's  Sweeping  Plurality         311 

Yet,  with  all  this,  two  facts  were  manifest  in  the 
financial  situation.  First,  the  worst  sufferers  were  not 
the  general  public — they  had  taken  their  medicine 
quickly  in  1901 — but  the  infatuated  millionaires;  and 
second,  the  real  elements  of  American  prosperity  con- 
tinued. The  episode  of  1903  was  rightly  described 
in  Wall  Street  as  a  "rich  men's  panic."  Perhaps  the 
surest  test  of  the  people's  actual  condition  came  in  the 
presidential  election  of  1904,  when  signs  of  industrial 
recuperation  were  general.  The  party  in  power,  with 
Mr.  Roosevelt  as  its  nominee,  won  the  most  sweeping 
victory  in  the  history  of  American  politics,  its  plurality 
on  the  popular  vote  being  the  extraordinary  figure  of 
2,541,000,  where  McKinley's  plurality  of  860,000  in 
1900,  had  itself  broken  all  preceding  records.  There 
were  other  reasons  for  this  unprecedented  vote,  which 
we  shall  have  occasion  to  examine  later  on;  but  it  was 
none  the  less  a  testimony  to  the  average  citizen's  con- 
tentment with  financial  and  industrial  conditions. 


CHAPTER  Xin 

WORLD-WIDE  RISE  IN  PRICES 

IT  is  not  always  easy  to  classify  a  year  such  as  1903, 
and  to  assign  its  proper  place  in  economic  history. 
That  it  was  merely  an  interlude  in  the  cycle  of 
prosperity,  was  proved  by  subsequent  events.  Wall 
Street — including  both  the  every-day  speculator  and 
what  is  known  as  "High  Finance" — undoubtedly  drew 
the  inference  that  1903  was  a  "panic  year,"  similar 
to  such  a  period  as  1893,  and  that  the  easy  recovery 
from  the  set-back,  and  the  quick  return  of  prosperity 
and  confidence,  provided  conclusive  testimony  to  the 
fact  that,  after  all,  economic  law  had  changed  and  that 
the  real  economic  penalty  for  financial  blunders  and 
excesses  need  be  feared  no  longer.  It  was  in  fact 
a  very  noticeable  phenomenon,  in  the  discussions  even 
of  experienced  bankers  at  that  period,  that  the  oc- 
currence of  another  panic  like  that  of  1893,  with  its 
runs  of  depositors,  its  general  suspension  of  bank 
payments,  its  recourse  to  clearing-house  loan  cer- 
tificates, and  its  premium  on  currency,  was  ac- 
cepted as  impossible.    Economists  who  did  not  take 

312 


1905)  Increasing  Prosperity  313 

that  view  had  two  explanations  to  offer  for  the  relapse 
of  1903  and  the  country's  quick  recovery  from  it.  One 
was,  that  this  was  an  after-effect  of  the  European 
"Boer  War  crisis,"  to  be  ended  when  financial  Europe 
got  on  its  feet  again,  as  it  did  in  1905.  Another  was, 
that  a  so-called  "little  panic"  always  comes  midway 
between  two-  serious  economic  crises — as  it  did  in 
1884  and  1866 — terminating  definitely  the  period  of 
easy  money,  but  not  so  completely  exhausting  the 
community's  economic  power  that  it  has  to  begin  to 
build  anew. 

Whichever  may  be  the  more  plausible  theory,  the 
fact  is  that,  as  in  the  sequel  of  1884,  the  doubts  and 
misgivings  of  this  minor  crisis  were  dismissed  within 
a  year  and  a  half.  By  1905,  not  only  the  United 
States,  but  Europe  also,  had  resumed  the  "industrial 
boom"  on  a  scale  of  substantial  magnitude.  To  at 
least  some  extent,  it  is  reasonable  to  suppose  that 
resumption  of  full  gold  production  in  South  Africa 
had  an  influence.  Having  reached,  in  English  values, 
a  high  record  of  ;€i 5, 500,000  in  1899,  on  the  eve  of  the 
Transvaal  War,  this  output  sank,  during  the  whole 
of  the  two-year  period  1900  and  1901,  to  ;;^i  ,014,000. 
It  then  recovered  gradually;  in  May,  1905,  it  passed 
the  high- water  mark  of  previous  monthly  production; 
in  the  twelvemonth  1906,  it  had  reached  the  sum  of 
;^24, 500,000. 1 

Partly  because  of  the  facilities  for  banking  credits 

'  Monthly  Reports,  Johannesburg  Chamber  of  Mines. 


314  American  Finance  [i905 

thus  provided,  partly  because  of  a  new  impulse  to 
enterprise,  more  keen  because  of  the  halt  that  had  been 
enforced  by  the  three  or  four  years  of  financial  reaction, 
the  exploits  of  1901  now  began  to  be  repeated,  not  in 
America  alone,  but  throughout  the  world.  This  last 
fact  is  important  to  keep  in  mind.  It  was  European 
over-expansion  which  came  to  grief  in  1899,  and 
American  over-expansion  which  met  its  reckoning  in 
1903.  America,  which  had  not  yet  overdone  things, 
was  in  a  position  to  help  out  financial  Europe  on  the 
first  occasion;  Europe  had  plenty  of  idle  capital  to 
put  at  America's  disposal  on  the  second.  To  find  a 
period  when  both  Europe  and  America,  and  with  them 
the  rest  of  the  financial  world,  were  simultaneously 
engaged,  as  they  were  during  1905  and  1906,  in  the 
intensely  eager  task  of  exploitation,  the  student  of 
history  would  possibly  have  to  go  back  to  the  early 
seventies. 

Circumstances  conspired  to  stimulate  this  world- 
wide movement  Two  years  of  exceptional  agricul- 
tural prosperity  occurred;  of  wheat  in  particular,  the 
world  produced  in  1905  a  crop  larger  by  nearly  100,- 
000,000  bushels  than  any  ever  before  harvested,  and 
in  1906,  the  yield  was  100,000,000  bushels  larger  still. 
Prior  to  1902,  the  world's  largest  wheat  yield  had 
been  2,900,000,000  bushels;  the  crop  of  1906  was 
3,400,000,000;  yet  such  was  the  magnitude  of 
consumption  that  English  experts  estimated  the 
second  of  these  figures  to  have  been  only  1,440,000 
bushels  beyond  the  world's  actual  requirements  for  the 


1905]   The  Trusts  and  the  Rise  m  Prices  315 

season.  *  In  the  United  States,  despite  the  signs  of  di- 
minishing productive  capacity  in  1904,  the  wheat  crops 
of  1905  and  1906  surpassed  all  precedent  except  the  great 
"wheat  year"  1901;  the  corn  crop  established  anew 
maximum  yield  in  each  of  these  two  years;  the  cotton 
yield  of  1905  was  the  third  largest  in  our  agricultural 
history  and  that  of  1906  was  only  a  trifle  below  the 
largest. 

Notwithstanding  this  bounty  of  nature,  prices  and 
cost  of  living  rose  with  greater  rapidity  than  at  any 
time  in  a  generation  past.  Taking  the  London  Econ- 
omist's  "index  number"  as  a  measure,  we  shall  find 
that  between  the  middle  of  1897,  when  low  level  of  the 
period  was  reached,  and  the  end  of  1904,  the  average 
of  commodity  prices  had  risen  from  1885  to  2136. 
Between  the  middle  of  1904  and  the  middle  of  1907,  it 
had  advanced  to  2601.  Comparing  the  index  number 
for  the  end  of  1904  with  that  for  the  middle  of  1897, 
we  shall  find  an  advance  of  13I  per  cent.  Comparing 
the  number  for  the  middle  of  1907  with  that  for  the  end 
of  1904,  we  shall  find  the  nse  for  that  second  period 
was  no  less  than  2 if  per  cent.  Putting  the  matter 
in  another  way,  on  the  basis  of  units,  the  increase  in 
the  index  number,  from  1897  to  1904  inclusive,  was 
251  points;  from  1904  to  1907  inclusive,  it  was  465 
points. 

That  is  to  say,  the  average  prices  of  commodities 
advanced  nearly  twice  as  far  during  the  second  period, 

«  Estimate,  Liverpool  Corn  Trade  News,  July,  1907. 


3i6  American  Finance  [1905 

which  was  less  than  half  as  long  as  the  period 
from  1897  to  1904.  To  come  down  to  specific  articles, 
such  as  play  an  important  part  in  cost  of  living,  the 
average  price  of  iron  during  1904  was  $15.57  per  ton; 
in  1906,  it  was  $20.98.  Steel  prices  averaged,  in  the 
respective  years,  $22.18  and  $27.45  ^;  leather,  18.9 
cents  a  pound  and  20.2;  butter,  16.5  and  18;  planed 
boards,  $20.05  P^^  thousand  feet  and  $21,342;  lead, 
4.42  cents  and  5.78^;  tin,  27.90  and  39. 67^.  ^  A  glance 
a,t  these  figures  will  show  the  advance  to  have  been 
greatest  in  commodities,  like  steel  and  lead,  whose 
production  in  this  country  is  in  the  main  controlled 
by  a  single  great  corporation.  This  process  was  most 
visibly  at  work  in  the  copper  industry;  in  which,  since 
1899,  the  $153,000,000  Amalgamated  Copper  Company, 
a  concern  organized  solely  to  buy  and  hold  the  shares 
of  copper  mines,  exercised  so  controlling  a  voice  in 
fixing  prices  that  even  foreign  metal  markets  admitted 
its  arbitrary  power.'*  In  1901,  when  this  company 
held  the  price  at  16  cents  a  pound,  it  was  declared  by 
the  trade  to  be  abnormally  and  artificially  high.  In 
1904  the  price  averaged  only  13I;  it  was  taken  in  hand 
again  and  marked  up  continuously  to  i8|  cents  in 
1905,  to  24  in  1906,  and  to  25^  early  in  1907.5  No 
price  approaching  this  had  been  touched  since  1873; 

•  Annual  Reports,  American  Iron  and  Steel  Association. 
:»  U.  S.  Statistical  Abstract,  1906,  p.  576. 

'  Annual  Report,  New  York  Metal  Exchange,  for  1906. 

*  London  Economist,  April  18,  1908,  p.  830. 

»  Annual  Report,  New  York  Metal  Exchange,  for  1907. 


1905]  Cost  of  Living  Advances  317 

yet  the  rise  occurred  in  the  face  of  an  increase  in  copper 
production,  between  1904  and  1906,  of  lof  per  cent, 
in  the  world  at  large,  and  of  13  per  cent,  in  the  United 
States  alone.  ^ 

Nor  was  it  only  the  great  industrial  trusts  which  pur- 
sued this  policy.  In  1901,  cotton  was  considered  dear 
at  10  cents  a  pound;  a  short  crop  and  a  New  York  cor- 
ner raised  the  price  in  March,  1904,  to  i6f ,  from  which, 
on  the  harvesting  of  a  crop,  the  ensuing  season,  20 
per  cent,  larger  than  the  previous  maximum  yield,  it 
fell  to  8  cents  or  thereabouts.  The  cotton  growers 
thereupon  organized;  conventions  were  held,  an  asso- 
ciation formed  with  branches  throughout  the  cotton 
belt;  resolutions  were  adopted  fixing  the  minimum 
price  at  15  cents  a  pound,  and  arrangements  made 
for  advancing  money  to  the  planter,  whereby  he  might 
hold  his  cotton  oflf  the  market  until  his  price  was 
reached.  2  The  "oflScial  price"  was  not  achieved; 
but  a  good  part  of  the  crop  of  1906,  which  was  only 
slightly  smaller  than  the  largest  yield  on  record,  was 
sold  at  prices  ranging  from  12  to  13  cents.  Meantime, 
hand  in  hand  with  the  rise  in  price  of  merchandise, 
land  and  rents  advanced.  The  rise  in  land  values, 
which  began  in  earnest  during  1904,  reached  the  next 
year,  in  a  good  part  of  this  country,  the  proportions 
of  a  mania.  Farm  lands  naturally  led  in  the  move- 
ment; with  the  great  harvests  and  the  high  prices, 

>  Annual  Report,  New  York  Metal  Exchange,  for  1907,  p,  10. 
»  Charleston  correspondence,  New  York  Evening  Post,  Jan. 
80,  1906;  Financial  Section,  p.  3, 


3i8  American  Finance  [1905 

their  actual  earning  power  was  enormously  enhanced; 
they  doubled,  trebled,  and  quadrupled  in  value.  But 
town  and  city  lots,  throughout  the  country,  followed 
suit.  Speculation  grew  violent  in  a  hundred  widely 
separated  localities,  and  one  would  see,  fifty  or  sixty 
miles  away  from  populous  cities,  unimproved  meadow- 
land  staked  out  with  street  signs  of  avenues  and  boule- 
vards, and  in  some  cases  dealt  in  through  paper 
"options,"  the  speculators  not  taking  the  trouble  even 
to  pass  title.  Sums  wholly  without  precedent  were 
invested  in  the  erection  of  town  and  city  dwellings.  In 
New  York  City,  capital  expended  on  construction  of 
new  buildings  had  never,  even  in  the  excited  years  of 
1899  and  1901,  exceeded  $150,000,000;  it  was  only 
$139,000,000  in  1904.  But  in  1905,  it  rose  to  the 
extraordinary  figure  of  $230,000,000,  ^  and  this  was 
typical  of  dozens  of  cities  throughout  the  United  States. 
Such  was  the  story  throughout  the  whole  domain 
of  industry,  and  one  inevitable  outcome  was  that, 
along  with  the  speculative  enthusiasm  and  the  accla- 
mations over  the  period's  immense  prosperity,  bitter 
complaint  arose  from  other  quarters  over  the  increased 
cost  of  living.  There  is,  indeed,  no  doubt  whatever 
that  one  large  section  of  the  community — including 
small-salaried  employees  and  people  with  moderate 
fixed  incomes — was  being  steadily  forced  back  to  a 
lower  scale  of  living  than  had  been  its  habit,  and  that 
another  section,  unwilling  to  economize  and  infected 

'  New  York  Real  Estate  Record  and  Guide,  Jan.  6, 1906,  p.  3. 


1904]         Growing  Strain  on  Capital  319 

by  the  extravagance  of  the  day,  indulged  without 
hesitation  in  living  beyond  its  means.  ^ 

Against  these  consequences,  organized  labor  was 
able  to  protect  itself;  the  urgent  demand  for  skilled 
workers  in  every  branch  of  industry  made  easy  the 
frequent  exaction  of  advance  in  wages.  Extensive 
strikes  were  rare,  because  employers,  their  books  full 
of  pressing  contracts,  could  not  risk  losing  workmen 
whom  they  might  possibly  not  be  able  to  replace. 
What  the  rise  in  wages  was,  we  may  learn  from  the 
Government's  reports.  Taking  as  a  basis  the  average 
wages  paid  to  American  laborers  in  the  decade  1890- 
1899,  and  assuming,  for  purposes  of  comparison,  100 
as  the  index-figure  of  wages  paid  per  hour  of  labor 
in  that  period,  the  statements  show  that  the  average 
rate  in  1904  was  117,  that  it  was  118.9  in  1905,  124.2 
in  1906,  and  128.8  in  1907.2  It  is  open  to  argument, 
and  indeed  is  largely  proved  by  the  calculations  of 
this  same  Government  report,  that  these  higher  wages 
did  not  much  more  than  compensate  for  the  increased 
cost  of  living. 

But  a  quite  inevitable  outcome  of  this  extraordinary 
rise  in  cost  of  materials  and  labor  was  the  demand  for 
increased  amounts  of  capital  for  use  in  trade,  and  a 
rise  in  the  price  of  money.  Even  among  merchants, 
it  was  common  complaint  that  nearly  twice  as  much 
money  had  to  be  used  to  conduct  the  same  volume 

«  M.  E.  Ingalls,  Chairman  "Big  Four"  Railway,  speech 
to  American  Bankers'  Convention,  September  27,  1907. 
•  U.  S.  Bureau  of  Labor,  Bulletin  for  July,  1908,  pp.  4  and  5. 


320  American  Finance  [t904 

of  business  as  had  been  necessary  two  or  three  years 
before.  Manufacturers  had  the  higher  cost  of  labor 
and  materials  to  absorb  increased  capital  on  the  same 
amount  of  output,  and  this  happened  at  a  time  when 
the  bank-deposit  fund,  the  surplus  capital  of  the  com- 
munity, was  being  narrowed  by  the  increasing  cost  of 
living.  That  necessarily  meant  low  bank  reserves 
and  dear  money.  Yet  evidence  of  a  growing  strain 
on  capital  resources  was  no  more  conspicuous  than 
evidence  of  the  financial  community's  readiness  to 
draw  still  more  largely  on  the  credit  market.  This 
readiness  was  tested  in  a  very  conclusive  way.  On 
the  night  of  February  8,  1904,  the  Japanese  fleet  at* 
tacked  the  Russian  squadron  at  Port  Arthur,  and  one 
of  the  three  most  costly  wars  since  the  Napoleonic  era 
began.  It  continued,  on  sea  and  land,  until  August 
29,  1905,  and  it  involved  an  expenditure,  by  the  two 
belligerents,  of  a  sum  not  far  below  two  thousand 
million  dollars. 

From  the  outbreak  of  the  Manchurian  war,  it  was 
plain  that  political  aflSliation  would  throw  on  France 
the  burden  of  equipping  Russia,  and  on  England  that 
of  equipping  Japan.  The  prospect  was  viewed  with 
great  uneasiness;  for  Russian  bonds,  in  a  sum  total 
estimated  between  $1,400,000,000  and  $1,700,000,000, 
were  already  in  the  hands  of  French  investors,  * 
who  might  be  frightened  into  panicky  liquidation, 
and  a  very    prevalent   belief   existed    that   Japan's 

»  New  York  £wn«»g  Porf,  Feb.  27,  1904,  Financial  Section, 


1904J  The  Manchurian   War  321 

economic  resources  were  not  strong  enough  to  endure 
the  prodigious  strain  ahead  of  them.  ^  On  Europe's 
stock  exchanges,  a  collapse  at  once  occurred  in  the 
general  investment  market,  especially  on  the  Paris 
Bourse  and  in  Russian  bonds  2;  but  it  was  promptly 
checked,  and  such  was  the  confidence  of  the  French 
rentier^  that  Russia  raised  in  the  Paris  market,  during 
1904  and  1905,  the  great  part  of  its  $500,000,000  loans 
of  the  period,  and  in  1906  easily  raised  $400,000,000 
more  to  settle  the  post-bellum  expenses. 

Japan,  applying  first  to  its  treaty  ally,  Great  Britain, 
now  tried  a  highly  interesting  experiment — it  asked 
the  co-operation  of  American  bankers  and  investors. 
Russia  had  made,  some  years  before,  a  similar  tenta- 
tive application,  and  had  failed.  The  American 
public  showed  no  interest;  no  banker  could  be  enlisted 
in  an  "  underwriting  " ;  and  although  one  Russian  bond 
issue  was  "listed"  on  the  New  York  Stock  Exchange, 
and  a  silver  vase  presented  by  the  Czar  to  that  in- 
stitution as  acknowledgment  of  the  favor,  not  one  of 
the  bonds  was  ever  dealt  in.  Japan  now  made,  in 
May,  1904,  its  initial  offer  of  $50,000,000  bonds,  allotted 
equally  to  England  and  the  United  States.  The  terms 
were  inviting;  Japan  pledged  its  customs  revenue  to  se- 
cure the  bonds,  offered  them  at  93^  cents  on  the  dollar, 
and  fixed  an  interest  rate  of  6  per  cent.   The  loan  was 

>  Interview  with  Sergius  Witte,  Russian  Finance  Minister, 
November,  1904. 

»  Paris  correspondence.  New  York  Evemng  Post,  March  5, 
1904,  Financial  Section,  p.  i;  Paris  correspondence,  London 
Economist,  Feb.  27,  1904,  p.  353. 


332  American  Finance  [1908 

moderately  over-subscribed.  In  November,  Japan 
again  applied  to  the  London  and  New  York  markets 
for  a  loan  of  $60,000,000.  It  bore  the  same  interest 
and  security  as  the  loan  of  May,  but  sold  at  88.  Be- 
tween that  time  and  Japan's  next  application  to  the 
markets,  events  in  Manchuria  moved  swiftly.  On 
January  2,  1905,  the  Russians  surrendered  Port  Arthur; 
in  March,  after  continuous  fighting  of  a  week  or  more, 
the  main  Russian  army  met  disastrous  defeat  at  Muk- 
den; in  the  same  month,  Japan  asked  for  $150,000,000 
more  from  the  English  and  American  money  markets. 
With  the  prestige  of  victory  on  their  side,  and  with 
the  bonds  of  1904  selling  on  the  market  10  per  cent 
above  their  issue  price,  the  Japanese  financiers  fixed 
an  interest  rate  of  only  4^  per  cent.,  pledged  only  the 
Government's  tobacco  monopoly  against  the  loan,  and 
asked  the  price  of  87! ,  or  nearly  as  much  as  was  brought 
by  the  second  6  per  cent,  loan  of  1904.  Yet  such  was 
the  enthusiasm  of  capitalists,  that  the  American  half 
of  the  loan  was  applied  for  six  times  over.  ^  First  and 
last,  Japan  expended,  in  conducting  the  Eastern  War, 
the  sum  of  1,982,190,000  yen,  or,  roughly,  $991,000,000,2 
making  the  rate  of  outlay,  of  the  two  contestants  in 
the  Eastern  conflict,  in  the  year  and  a  half  of 
war,  more  than  $3,000,000  daily.  Something  less 
than  half  of  Japan's  war  expenditure,  and  a  similar 
part  of  Russia's,  were  defrayed  through  in  creased  home 
taxation   and    domestic   loans.     But   taking   the   two 

>  New  York  Financial  Chronicle,  April  i,  1905,  p.  1202. 
'  Financial  and  Economic  Annual  of  Japan,  1906,  p.  12. 


1906]       World-wide  Speculation  Begins        323 

belligerents  together,  it  is  safe  to  say  that  the  Eastern 
War  brought  a  requisition  on  the  neutral  markets,  dur- 
ing 1904  and  1905,  of  not  much  less  than  one  billion 
dollars. 

Now  money  thus  expended  is  pure  waste;  it  does  not 
return  to  the  channels  of  industry,  and  it  diminishes 
the  world's  reserve  of  capital.  Yet  this  prodigious 
drain  did  not  in  the  least  restrict  demands  for  capital 
in  finance  and  industry;  on  the  contrary,  it  seemed 
to  stimulate  them.  Although  1904  had  been  the  year 
of  heavy  Japanese  loans  in  London,  requisitions  on 
that  market's  capital,  through  new  security  issues,  ran 
in  1905  $220,000,000  above  the  preceding  year,  reach- 
ing a  height  never  exceeded  save  in  the  twelvemonth 
before  the  "Baring  panic  year." 2  Exchange  of 
checks  at  the  London  Bankers'  Clearing-house,  in 
1905,  rose  16  per  cent,  above  the  highest  previous 
yearly  total,  and  30  per  cent,  above  so  active  a  year 
as  1899.2  All  this  reflected  immense  activity  at  the 
central  money  market  of  the  world.  In  the  United 
States,  bank  clearings  in  1905  rose  27  per  cent,  over 
1904  and  greatly  exceeded  all  previous  records;  yet 
those  of  1906  were  11  per  cent,  larger  still.  ^  On  the 
European  continent,  Germany's  issue  of  new  securities 
in  1905  was  70  per  cent,  larger  than  in  1904;  the  esti- 
mated total,  $770,000,000,  comparing  with  $615,000,- 
000   in   1898,   itself  the  maximum  of  that  decade's 

>  London  Economist,  Dec.  30,  1905,  p.  3 no. 

»  Ihid.,  Dec.  30,  1905,  p.  2128;  Jan.  6,  1900,  p.  16. 

*  New  York  Financial  Chronicle,  Jan.  la,  1907,  p.  74. 


324  American  Finance  [1906 

excited  "boom"  and  the  previous  high  record  in  the 
country's  history.  *  That  it  was  not  alone  financial 
activity,  moreover,  which  was  pulling  at  the  market's 
purse-strings,  may  be  shown  by  the  fact  that  iron 
production,  a  fair  measure  of  industrial  conditions, 
increased  in  England  from  8,500,000  tons  in  1904  to 
9,500,000  in  1905  and  10,000,000  in  1906 — a  30  per 
cent,  increase  over  1901, — in  Germany  from  10,000,000 
tons  in  1904  to  12,200,000  in  1906,  and  in  the  United 
States  from  16,400,000  tons  in  1904  to  25,300,000  in 
1906;  the  figures  of  the  last-named  year  being  in  all 
three  instances  unprecedented. 2  "Everything  is  in 
motion,"  wrote  a  trained  observer  regarding  1906; 
"railways,  steamers,  factories,  harbors,  docks;  it 
is  evident  that  so  gigantic  a  development  of  trade  and 
industry  could  not  fail  to  have  a  marked  influence  upon 
the  position  of  the  international  money  market. "  ^ 

That  influence  would  have  been  less  formidable, 
even  with  the  engulfing  of  capital  in  the  Eastern  War 
loans,  had  not  speculation,  with  its  enhancement  of 
values  and  its  peremptory  demand  on  bank  resources, 
thrown  its  weight  into  the  scale.  Let  it  again  be  ob- 
served that,  unlike  our  "boom"  of  1901,  the  industrial 
expansion  of  1905  and  1906,  and  the  speculation  which 

«  Frankfurter  Zeitung  estimates;  see  London  Economist, 
Berlin  correspondence,  Jan.  13,  1906,  p.  53,  and  Jan.  11,  1902, 
p.  49. 

'  Annual  Reports,  American  Iron  and  Steel  Association, 
for  1905,  pp.  85  and  88;  for  1906,  pp.  51,  84,  and  85. 

*  C.  Rozenraad,  Address  to  the  London  Institute  of 
Bankers,  March  6,  1907. 


19061  Very  High  Money  Rates  325 

accompanied  it,  were  limited  only  by  the  bounds  of 
the  civilized  world.  In  October,  1905,  when  the 
Imperial  Bank  of  Germany  put  up  its  discount  rate 
successively  to  5,  to  5^,  and  to  6  per  cent. — the  last- 
named  figure  being  the  highest  ever  reached,  except 
in  time  of  actual  financial  panic, — the  authorities  of 
the  bank  declared  publicly  that  the  volume  of  un- 
covered note  circulation,  a  pure  emergency  device,  was 
the  largest  in  the  history  of  the  institution,  and  that 
the  high  discount  rate  was  expressly  designed  to  apply 
a  curb  to  the  German  speculative  mania.  ^  In  Egypt, 
land  and  stock  speculation  reached,  between  1905  and 
1907,  a  pitch  of  excitement  which,  later  on,  a  responsi- 
ble financier  described  as  meaning  that  the  "people 
were  apparently  mad;  I  do  not  know  what  other  word 
to  use;  they  seemed  to  think  that  every  company  that 
came  out  was  worth  double  its  value  before  it  had 
even  started  business.  "^  In  Japan,  the  declaration 
of  peace  in  August,  1905,  was  followed  by  what  was 
described  in  a  subsequent  government  review  as  a 
"fever  of  enterprise,"  in  which  "prices  of  securities 
rose  higher  and  higher, "  with  "  a  similar  rise  of  prices  in 
general,"^  and  of  which  high  banking  authority  re- 

»  Report  by  Dr.  Koch,  President  of  the  Reichsbank,  Oct. 
3,  1905;  London  Economist's  Berlin  correspondence,  Oct. 
7  and  Nov.  ii,  1905. 

'  Chairman's  address  to  shareholders'  meeting.  Bank  of 
Egypt,  March  6,  1908.  See  also  report  of  Sir  Vincent  Cor- 
bett,  financial  adviser  to  the  Khedive,  London  Economist, 
Dec.  30,  1905,  p.  2108. 

*  Financial  and  Economic  Annual  of  Japan,  1907,  p.  5. 


326  American  Finance  tl906 

marked  that,  by  1906,  "men  of  judgment  had  alreadj 
begun  to  look  askance  at  this  state  of  affairs."*  From 
South  America,  it  was  reported  of  1905,  by  an  observer 
on  the  spot,  that  in  Chili,  "the  only  apparent  factor 
that  restricts  operations  in  all  directions  is  the  scarcity 
of  labor;  wages  and  salaries  have  risen  greatly  and 
continue  to  rise,  as  all  employers  are  on  the  lookout 
for  workers.  As  money  became  more  plentiful,  the 
price  of  provisions  rose  and  money  became  more 
expensive. "  ^ 

Here,  then,  were  markets  in  four  continents  plunging 
simultaneously  into  speculation,  at  the  very  moment 
when  trade  demands  were  at  a  maximum,  and  when 
the  Manchurian  war  had  drawn  in  such  prodigious 
sums  on  the  world's  capital  reserves.  The  process 
was  imitated  in  the  surrounding  states.  It  was  not  to 
be  supposed  that,  with  its  appetite  whetted  by  remem- 
brance  of  1901,  and  with  its  own  interior  commerce, 
foreign  trade,  railway  revenue,  grain  harvests,  metal 
and  mineral  production,  iron  and  textile  manufacture, 
at  top  notch  in  its  history,  ^  the  United  States,  in  yet 
another  continent,  would  fail  to  follow  suit.  Of  the 
American  speculation  in  commodities  and  land  I  have 
already  spoken;  but  the  spectacular  interest  of  the 
period  attached  to  the  Stock  Exchange.    During  the 


«  Annual  Report  Bank  of  Japan  for  1907. 

'  Report  of  British  Consul  at  Valparaiso;  see  London 
Economist,  Dec.  14,  1907,  p.  2171. 

'  U.  S.  Statistical  Abstract  for  1906,  pp.  657,  676,  677,  678, 
680,  685. 


1906]         The  Millionaire  Speculation  327 

autumn  of  1905  this  speculation  reached  a  singular 
position.  It  was  not,  like  the  American  stock  specu- 
lation of  1 901,  conducted  on  the  basis  of  public  partici- 
pation; the  real  outside  investor  now  had  employment 
for  his  own  capital  in  the  increasing  demands  of  his 
private  business.  But  to  his  absence  the  speculative 
leaders,  who  comprised  large  groups  of  immensely 
wealthy  capitalists,  bank  oflScers,  and  railway  direc- 
tors, were  seemingly  indifferent.^  Their  bank  affli- 
ations  enabled  them  to  pursue  their  course  unchecked; 
their  use  of  credit  was  practically  unrestrained;  there 
seemed  no  boimds  to  the  audacity  of  their  ventures.  2 
Railways  with  share  capital  running  into  the  tens  of 
millions  were  practically  cornered  on  the  Stock  Ex- 
change; one  of  them,  a  company  with  $70,000,000 
outstanding  stock,  was  put  up  20  per  cent,  in  price 
Vithin  a  fortnight,  and  without  a  particle  of  news  to 
iffect  its  value  legitimately.  The  same  thing  happened 
in  a  dozen  other  properties. 

These  exploits  were  carried  out  in  the  face  of  rapidly 
falling  bank  reserves  and  rapidly  rising  money  rates. 
Even  at  the  height  of  the  speculative  craze  of  1901, 
mercantile  discounts  at  New  York  had  ranged  around 
5  per  cent.;  in  the  autumn  of  1905,  the  full  legal  rate 
was  charged,  plus  a  "broker's  commission,"  which 
brought  the  actual  rate  as  high  as  7  per  cent. — ^a  very 
abnormal  figiu-e,  showing  that  general  trade  was  feeling 

•  New  York  correspondence,  London  Economist,  Nov.  i8, 
Nov.  35,  Dec.  9,  Dec.  i6,  1905. 

*  London  Economist,  Nov.  18,  1905,  p.  1834. 


328  American  Finance  [1906 

the  strain.  *  But  the  Stock  Exchange  speculation  did 
not  halt;  in  various  stocks  controlled  by  powerful 
groups  of  capitalists,  advances  of  10  to  20  per  cent, 
occurred,  with  enormous  trading.  When  the  New 
York  banks  reported  a  steadily  weakening  position, 
recourse  was  had  to  Europe.  Money  was  raised  in 
London  on  the  collateral  of  these  speculative  holdings, 
and  great  blocks  of  American  stock  shipped  from  New 
York  to  the  English  market. ^  "Finance  bills"  re- 
appeared— a  device  which  had  first  become  familiar 
in  1 901  and  1902,  and  which  meant  the  raising  of 
capital  abroad,  sometimes  in  tens  of  millions  of  dollars, 
not  on  the  basis  of  automatic  extinction  of  the  debt 
by  grain  and  cotton  exports,  but  through  outright 
borrowing  on  the  paper  of  powerful  New  York  banking 
houses.  3  Such,  however,  was  the  persistence  of  de- 
mands on  home  bank  resources,  that  even  this  ex- 
pedient failed  to  relieve  the  pressure,  and  meantime 
money  rates  were  advancing  in  Europe  also.  On 
November  11,  1905,  and  again  on  December  9th, 
reserves  of  the  New  York  Associated  Banks  fell  below 
the  25  per  cent,  ratio  to  deposits  stipulated  by  the 


>  New  York  Financial  Chronicle,  Dec.  9,  1905,  p.  1632. 

»  London  correspondence,  N.  Y.  Evening  Post,  Dec.  9, 
1905,  Financial  Section,  p.  3. 

»  E.  H.  Holden,  chairman  London  City  &  Midland  Bank, 
interview  in  New  York  Herald,  Sept.  20,  1906;  interview  in 
London  Standard;  reprinted  in  New  York  Evening  Post,  Nov. 
17,  1906,  Financial  Section,  p.  3.  See  Ibid.,  July  23,  1905, 
Financial  Section,  p.  6;  Oct.  27.  1906,  London  Outlook, 
quoted  in  Evening  Post,  Sept.  15,  1906. 


1906]        Predictions  of  Coming  Danger        329 

National  Bank  Act.  Rates  for  demand  loans  on  Wall 
Street  went  to  25  per  cent,  in  November,  and  still  the 
Stock  Exchange  speculation  for  the  rise  continued. 
On  December  28th,  the  rate  reached  125  per  cent. 
Addressing  a  gathering  of  practical  New  York  business 
men,  a  few  days  afterward,  and  referring  to  that  money 
rate,  an  eminent  financier  declared: 

"If  the  currency  conditions  of  this  country  are  not 
changed  materially,  I  predict  that  you  will  have  such 
a  panic  in  this  country  as  will  make  all  previous  panics 
look  like  child's  play. "  * 

Just  how  far  this  prophecy  was  destined  to  be  ful- 
filled, we  are  presently  to  see.  But  in  the  light  of  what 
we  have  now  reviewed,  it  may  reasonably  be  asked, 
whether  the  laying  of  responsibility  on  the  currency 
touched  the  source  of  evil.  A  very  different  inter- 
pretation of  the  same  events  was  made  by  an  eminent 
European  economist,  who  wrote,  at  the  culmination 
of  this  strain  on  the  money  market  of  the  world: 

"  The  growing  industrial  states,  particularly  the  new  coun- 
tries, are  at  this  moment  demanding  more  capital  than  the 
whole  world  has  accumulated  recently,  or  is  accumulating 
to-day.  .  .  .  The  civilized  world,  so  far  as  it  can  be 
reckoned  up,  provides  $2,400,000,000  in  available  capital 
annually  for  investment  in  securities;  it  is  asked  in  1906  to 
provide  $3,250,000,000;  there  was  a  demand,  in  America  at 
any  rate,  for  even  more  than  its  part  of  the  above  estimate 
to  be  provided  during  1907.  But  the  world  has  not  got  it; 
therefore  it  cannot  provide  it.  Add  to  this  the  effect  of 
catastrophes    such   as  the   San   Francisco    and   Valparaiso 

>  Speech  of  Jacob  H.  Schiff  to  New  York  Chamber  of 
Commerce,  January  4,  1906- 


330 


American  Finance 


[1906 


earthquakes,  which  cost  something  like  $200,000,000,  and  you 
will  have  a  perfectly  clear  explanation  of  the  existing  crisis, 
the  rise  in  the  interest  rate  and  the  fall  of  investment  securi- 
ties. The  truth  is,  nations,  quite  as  well  as  individuals,  have 
reached  the  point  where  they  must  limit  their  undertakings 
to  the  possibilities  of  the  case;  that  will  be  done,  if  not  will- 
ingly, then  by  force  of  events."' 

>  Paul  Leroy-Beaulieu:  "La  Crise  est-elle  en  Vue?" 
Economiste  Frangais,  Jan.  5,  1907 ;  "  Les  Marches  Financiers, " 
Ibid.,  June  22,  1907;  "L'  Insuffisance  des  Capitaux, "  Ibid., 
^ug.  31,  1907- 


CHAPTER  XIV 

SOCIAL  AND  POLITICAL  RESULTS 

THE  events  which  I  have  narrated  in  the  two  pre. 
ceding  chapters  were  of  a  character  to  influence 
profoundly  social  and  political  conditions,  and  no 
review  of  the  period  would  be  at  all  adequate  which 
did  not  make  careful  account  of  developments  in  such 
directions.  The  advance  in  commodity  prices;  the 
growth  of  industrial  combinations,  on  a  scale  of  mag- 
nitude beyond  the  imagination  of  the  previous  decade; 
the  sensational  speculation  in  securities  and  com- 
modities; the  overshadowing  power  acquired,  through 
their  bank  and  company  affiliations,  by  a  handful 
of  immensely  wealthy  capitalists — these  were  the 
tjqjical  phenomena  of  the  day.  They  were  dominant 
influences  on  financial  markets;  but  they  also  touched 
closely  the  every-day  life  and  habits  of  the  ordinary 
citizen.  Socially,  they  had  two  distinct  and  opposite 
effects.  The  first  was  extravagance  of  living — more 
spectacular  in  the  case  of  men,  like  the  independent 
steel-producers  of  1901,  whom  the  "deals"  of  the  great 
trade  combinations  had  suddenly  made  millionaires 

331 


332  American  Finance  [1906 

many  times  over,  but  noticeable  also  in  the  community 
at  large.  Belief  in  impregnable  prosperity  was  general, 
and  with  that  belief  came  not  only  lavish  private  ex- 
penditure, but  appetite  for  speculation.  Newspapers 
of  1905  were  full  of  advertisements  of  mining,  oil, 
and  miscellaneous  ventures — many  of  them  fraudulent 
on  their  face.  The  known  losses  incurred  in  one 
group  of  enterprises  of  the  sort  seemed  to  impose  no 
check  on  the  public's  response  to  the  next  invitation; 
people  were  apparently  determined  to  speculate,  and 
even  in  the  villages,  the  talk  of  "tips"  and  "sure- 
things"  was  of  constant  recurrence  in  every-day  con- 
versation. Announcements  of  bureaus  which,  at  the 
subscription  price  of  $5  to  $10  per  month,  would  pro- 
vide "advance  tips"  on  stocks  which  were  bound  to  rise, 
filled  columns  of  advertising  space.  One  notorious 
expert  in  the  business  was  accustomed  to  buy  up  a  full 
page  in  the  daily  papers,  using  it  to  entice  the  thrifty 
middle  classes  into  his  speculations.  The  objective 
point  in  nearly  all  such  schemes  was  reached:  the 
public.  East  and  West,  threw  its  money  into  them, 
and  the  result,  as  in  the  closely  parallel  conditions  of 
1872  and  1856  and  1836,  was  to  create  among  great 
bodies  of  our  people  a  false  point  of  view  and  de- 
moralizing business  standards. 

But  step  by  step  with  the  progress  of  this  tendency, 
another  and  a  very  different  kind  of  public  sentiment 
was  growing.  Rise  in  the  cost  of  living  bore  heavily 
on  all  classes  of  society  whose  incomes  remained  fixed 
or  were  not  advanced  in  proportion  to  the  higher  prices. 


1906]  The  Public  and  the  Trusts  333 

On  people  in  this  position — and  their  number  in- 
creased with  great  rapidity  during  1905  and  1906 — 
visible  evidence  that  a  few  great  capitalists  were  getting 
control  of  the  sources  of  production  and  transportation 
could  not  fail  to  make  impression.  It  may  be  that  the 
public  mind  exaggerated  the  facts.  When  nearly  all 
the  cheap  magazines,  and  a  good  part  of  the  daily  news- 
papers, were  treating  the  sensational  aspects  of  the 
situation,  it  would  have  been  strange  had  no  mis- 
apprehensions been  created.  But  actual  events  were 
of  a  nature  to  disturb  even  experienced  men  of  affairs. 
That  prices  of  commodities  might,  in  certain  cases, 
be  controlled  and  manipulated  by  the  great  trade  com- 
binations, in  the  interests  of  the  men  behind  them, 
had  been  shown  by  the  Amalgamated  Copper  Com- 
pany, and  the  steel,  sugar,  oil,  and  lead  trades  were 
equally  in  the  grasp  of  powerful  trusts.  Independent 
railway  companies  were  fast  disappearing  into  the 
hands  of  four  great  systems — commonly  known  as  the 
Vanderbilt,  Pennsylvania,  Hill,  and  Harriman  groups 
— and  the  Northern  Securities  merger  suggested  what 
might  happen  even  to  these  four  systems. 

This,  it  is  true,  was  not  a  new  tendency  of  the  day, 
and  had  long  been  discussed  as  a  factor  in  the  growth 
of  industrial  efl&ciency.  It  was  declared,  even  by 
many  eminent  economic  scholars,  that  the  day  of 
unrestrained  competition  was  past,  and  that  it  was 
best  that  it  should  be.  Similar  industrial  tendencies, 
so  far  as  regards  great  combinations,  were  visible  in 
f^ngland  and  Germany  as  well  as  in  this  country. 


334  American  Finance  [i906 

But  in  America  the  manner  in  which  the  Captains 
of  Industry  acquired  and  exercised  their  powers 
put  a  dififerent  face  on  things.  The  Steel  Corporation, 
in  the  face  of  remonstrance  from  its  shareholders 
and  almost  unanimous  protest  from  outside  critics, 
undertook  to  turn  $200,000,000  of  its  stock  into  mort- 
gage bonds,  employed  an  enormously  expensive  syndi- 
cate for  the  purpose,  and  was  eventually  stopped  only 
by  revolt  of  some  of  its  own  directors.^  A  $52,000,000 
company,  controlling  all  the  street  car  lines  of  New 
York  City,  was  leased  to  a  small  suburban  trolley 
company  with  four  miles  of  track,  and  shareholders  who, 
at  the  ratifying  meeting,  demanded  investigation  of 
the  plan  before  approving  it,  were  calmly  told  by  the 
chairman  to  "vote  for  it  first  and  discuss  it  afterwards.  "^ 
It  was  very  much  discussed  a  few  years  later,  when  the 
-whole  enterprise  went  into  bankruptcy  with  evidence 
of  "inside"  trickery,  mismanagement,  and  plunder. 
The  question  was  no  longer  merely  that  of  the  size 
of  combinations,  but  of  the  purposes  of  the  controlling 
interests.  Mr.  J.  P.  Morgan  frankly  and  publicly 
avowed  his  belief  in  creating  corporations  with  capital 
stock  so  large  that  existing  managements  could  not  be 
unseated.  3  Mr.  Harriman,  who  had  won  repute  not 
only  as  a  skilful  railway  manager  but  as  a  daring 
speculator,  was  authorized  by  the  Union  Pacific  board, 

>  Forum,  January,  1904,  pp.  367-371. 

2  See  report  of  meeting  in  New  York  Evening  Post,  March 
30,  1902. 

»  Testimony  in  Peter  Power  vs.  Northern  Securities  Co.; 
New  York,  March  36,  1902. 


1906]  Attitude  of  the  Capitalists  335 

of  which  he  was  chairman,  to  "borrow  such  sums  of 
money  as  may  be  required  for  the  uses  of  this  company, 
and  to  execute  in  the  name  and  on  behalf  of  this  com- 
pany a  note  or  notes  for  the  amount  so  borrowed."* 
What  use  he  proposed  to  make  of  this  autocratic  power 
was  shown  by  his  purchase  on  the  Union  Pacific's 
credit,  during  seven  months  following  June,  1906,  of 
$131,970,000  stocks  of  other  railways,  some  of  them 
on  the  other  side  of  the  continent  from  his  own.  2  Had 
Harriman  achieved  his  purpose  of  capturing  the  North- 
ern Pacific  in  1901,  his  success,  combined  with  his 
previous  acquisitions,  the  Interstate  Commerce  Conr 
mission  declared,  "would  have  subjected  to  a  common 
will  and  policy  nearly  one-half  of  the  territory  of  the 
United  States — a  comparatively  undeveloped,  rapidly 
growing,  and  extremely  rich  territory,  into  which  must 
necessarily  extend  the  population  and  business  of  the 
Eastern  States."  Even  as  regarded  the  rest  of  the 
United  States,  Harriman  defiantly  testified,  in  a  public 
hearing,  that  if  the  law  would  let  him  alone,  he  would 
"spread  not  only  over  the  Pacific  coast,  but  spread 
over  the  Atlantic."  "I  would,"  he  declared  of  his 
policy  of  buying  up  one  group  of  railroads  on  the  credit 
of  another,  "go  on  as  long  as  I  live."^  When  the 
Northern  Securities  holding  company,  formed  to  own 
a  majority  interest  in  the  Northern  Pacific  and  Great 

»  Commissioner  Lane;  13  Interstate  Commerce  Commission 
Reports,  No.  943,  p.  2. 
» Ibid.,  p.  20. 
«  Ibid.,  p.  5. 


336  American  Finance  [190s 

Northern  railways,  came  before  the  court,  and  its 
counsel  was  setting  forth  the  good  influence  of 
the  merger,  he  was  asked  from  the  United  States 
Supreme  Bench  if  the  same  machinery  might  not  be 
employed  to  buy  up  all  the  railways  of  the  United 
States,  and  place  control  of  the  whole  of  them  in  the 
hands  of  three  or  four  individuals.  He  answered  that 
such  use  of  it  would  be  highly  improbable,  but  that 
it  might  be  so  employed.^ 

It  was  not  alone,  however,  the  possibilities  arising 
from  such  power  on  which  public  interest  was  con- 
verged by  the  movement  of  events,  but  the  manner 
of  acquiring  the  power.  On  this  question,  what  was 
deemed  at  the  time  an  accident  poured  a  sudden  flood 
of  light.  It  had  long  been  suspected,  by  the  general 
public,  that  the  great  promoters  were  somehow  em- 
ploying in  their  projects  the  funds  of  life-insurance 
companies.  How  convenient  such  recourse  should 
have  been,  was  manifest  from  the  fact  that  three  New 
York  institutions  of  this  class,  at  the  end  of  1904, 
reported  investments  in  stocks  and  bonds  footing  up 
$765,900,000.2  In  February,  1905,  a  quarrel  broke 
out  between  the  President  and  Vice-president  of  the 
Equitable  Life,  a  joint-stock  institution  with  $413,- 
000,000  total  resources  but  a  share  capital  of  only 
$100,000,  of  which  $51,000  was  owned  by  one  James 

>  Justice  Brewer,  concurring  opinion  Northern  Securities 
vs.  United  States;  U.  S.  Supreme  Court;,  March  14,  1904. 

»  Reports  of  Equitable  Life,  New  York  Life,  and  Mutual 
Life,  to  New  York  Insurance  Department. 


1905]  The  Life  Insurance  Scandal         33  7 

H.  Hyde,  a  young  man  of  twenty-seven,  son  of  the 
founder  of  the  company.  This  stock  carried  only  7 
per  cent,  dividends;  but  the  majority  holding  gave 
to  its  owner  unusual  power  for  overruling  policies  of 
the  president  and  trustees.  ^  The  president  of  the 
Equitable  sent  to  his  fellow-directors,  over  his  signature 
and  that  of  other  active  oflficers,  a  flat  declaration  that 
the  re-election  of  Mr.  Hyde  as  vice-president  "would 
be  most  prejudicial  to  the  welfare  and  progress  of  the 
society  and  the  conservation  of  the  trust  funds.  "^  At 
the  ensuing  annual  meeting  of  the  Equitable  trustees, 
this  protest  was  again  submitted,  and  a  petition  to  turn 
the  society  from  a  joint-stock  into  a  mutual  company 
was  added.  ^  The  course  of  the  personal  dispute  need 
not  concern  us  further;  in  the  event,  Mr.  Hyde  and 
Mr.  Alexander  both  retired  from  the  company.  The 
real  significance  of  the  episode  was  that  it  compelled 
investigation  and  publicity  regarding  the  use  of  the 
Equitable's  funds. 

First,  the  trustees  appointed  a  committee  of  their 
own;  this  committee,  three  months  later,  submitted  a 
report  which  threw  the  directors'  meeting  into  dis- 
order, and  led  to  a  searching  inquiry  by  the  New 
York  Legislature.  The  Frick  committee  found  that 
ofl&cers  of  the  Equitable  had  used  the  company's 
funds  as  subscriptions  to  "underwritings"  organized 

» Report  of  Frick  Committee  to  Equitable  Trustees,  May  31, 
1905,  pp.  16-17. 

» Statement  of   President  James  W.   Alexander,   Feb.  2, 

1905- 

^  Frick  Report,  p.  4. 


338  American  Finance  tl905 

by  themselves,  thereby  violating  the  insurance  law^; 
that  one  of  them  had  without  authority  carried  in 
his  own  name  large  blocks  of  securities  owned  by 
the  company  2;  that  the  Equitable,  which  was  de- 
barred by  law  from  speculative  undertakings  in  Wall 
Street,  had  bought  control  of  three  trust  companies 
with  broader  powers,  ^  and  had  kept  on  deposit  with 
those  companies  the  greater  part  of  its  own  cash  sur- 
plus*; that  in  1903,  with  $36,000,000  thus  deposited, 
it  had  been  unable  to  use  for  its  own  legitimate  invest- 
ments any  part  of  the  money  thus  deposited,  undoubt- 
edly because  the  deposit  had  been  tied  up,  through 
these  other  banking  institutions,  in  illegitimate  financial 
ventures  5;  and  that  its  president,  with  that  huge  sum 
in  bank  and  with  standard  investment  securities  at  a 
most  inviting  price,  had  written  to  a  fellow-officer  that 
"we  would  be  buying  a  good  many  of  such  things 
were  it  not  that  we  are  so  strapped  for  money  by  en- 
gagements already  made.'"^ 

When  a  committee  of  trustees  had  exposed  such  per- 
formances with  the  trust  funds  of  the  people,  it  was 
plain  that  the  State  would  have  to  take  a  hand.  The 
New  York  Legislature  promptly  named  a  committee  of 
investigation.    Under   the  leadership  of  its   coimsel, 

»  Frick  Report,  pp.  18,  19,  20.  Statement  of  J.  H.  Hyde, 
April  15,  1905. 

» Ihid.,  p.  22. 

» Ibid.,  p.  25. 

« Ibid.,  p.  30. 

»/6td.,  pp.  30,  31,  32. 

•Letter  of  James  W.  Alexander,  Aug.  13,  1903;  Frick 
Export,  p.  32. 


1905]  Investigating  Committees  339 

Charles  E.  Hughes,  it  began,  on  September  6,  1905-, 
a  searching  examination.  This  committee  sat  until 
the  close  of  1905,  and  the  secrets  of  the  "  life  insurance 
connections"  of  high  finance  were  laid  bare.  The 
committee  found  relatively  little  of  the  sale  of  se- 
curities to  companies  by  their  own  trustees,  as  exposed 
by  the  Frick  committee,  but  very  much  use  of  the 
companies'  funds  to  participate  in  syndicates  in  which 
trustees  were  personally  interested  ^  Employment  of 
life  insurance  funds,  through  subsidiary  companies, 
for  investment  in  undertakings  forbidden  to  the  life 
concerns  themselves — including  the  United  States 
Steel  and  "Shipping  Trust"  promotions — was  found  to 
have  prevailed  on  an  extensive  scale,  and  occasionally 
with  misleading  entries  on  the  books  2;  legislators, 
political  committees,  and  even  newspapers  had  been 
subsidized  in  enormous  sums.^  Along  with  this,  ex- 
orbitant salaries  and  nepotism  had  prevailed,*  but 
dividends  to  policy-holders  had  not  only  decreased 
actually,  but  had  fallen  far  below  official  and  published 
estimates.  5  The  climax  of  this  extraordinary  testi- 
mony was  capped  by  the  president  of  one  of  the  largest 
companies,  who,  when  confronted  with  the  above 
conditions,  declared  on  the  stand  that  the  promoters 
of  his  company  had  acted  "  from  a  pure  spirit  of  phi- 

«  Armstrong  Committee's  Report  to  New  York  Legislattire, 
Feb.  22,  1906,  pp.  35,  36,  140,  141,  142. 
t  Ibid.,  pp.  68-81,  III,  112,  136. 

*  Ibid.,  pp.   17-36,  50-64,   loS-ilo. 

*  Ibid.,  pp.  12-15,  107. 
» Ibid.,  p.  40. 


340  American  Finance  [1905 

lanthropy  and  benevolence,"  establishing  " a  missionary 
enterprise,  so  to  speak";  but  that  it  "wasn't  the 
object  to  declare  a  dividend  to  a  man,"  in  order  that 
a  policy-holder,  having  paid  his  annual  premium, 
should  "then  at  the  end  of  the  year  get  seven  dollars 
and  go  home  and  spend  it  for  cigars. "  ^ 

This  investigation,  publicly  conducted  during  four 
successive  months,  and  reported  in  every  newspaper, 
had  an  influence  on  public  sentiment  which  was  difl&cult 
to  measure.  Much  has  been  said  and  written,  since, 
in  deprecation  of  the  campaign  of  sensational  ex- 
posure, insinuation,  and  investigation,  regarding 
"graft"  in  high  finance,  which  at  once  became  the 
popular  newspaper  and  magazine  topic  of  the  day. 
The  White  House  itself  publicly  disapproved  the 
"muck-raking"  tendencies  of  the  day. 2  But  the 
muck-raking  was  not  a  popular  demonstration  without 
a  cause,  and  we  have  seen  what  the  causes  were.  Both 
causes  and  consequence  were  among  the  social  phe- 
nomena which  gave  the  period  its  character,  and 
both  had  an  important  hand  in  subsequent  events. 
The  insurance  scandal  itself  ended,  as  was  inevitable, 
in  a  thorough  reform  law  for  life  insurance  in  New 
York  State,  whereby  not  only  were  the  practices  thus 
exposed  prevented  for  the  future,  but  the  life  companies 
were  prohibited  from  owning  other  institutions,  and  the 
unlimited   increase  of  capital   resources   in  a   single 

«  Testimony  of  R.  A.  McCurdy;  Armstrong  Report,  ii.,  pp. 
1840,  1841. 

»  President  Roosevelt,  speech  of  April  14,  1906. 


1905]  Effect  on  the  Public  Mind  .          341 

corporation's  hands  stopped  by  providing  that  no 
company  should  thereafter  accept  more  premiimis 
when  its  total  outstanding  policies  had  reached  $150,- 
000,000.  Yet  the  fact  that,  after  all  this  series  of 
exposures,  a  notorious  promoter  should  have  bought 
Mr.  Hyde  's  controlling  interest  in  the  Equitable  for 
$2,500,000,  and  should  have  then  engaged  in  an  angry 
quarrel  with  another  speculating  capitalist,  as  to  whether 
one  of  them,  or  both,  should  own  it,  did  not  throw  an 
agreeable  light  even  on  the  conclusion  of  the  episode. 
Mr.  Ryan  did  indeed  place  the  Equitable  stock  in  the 
hands  of  trustees  of  high  reputation.  But  Mr.  Harri- 
man's  proposition — "I  will  take  half  your  stock;  I 
don't  know  what  it  cost  and  I  don't  care" — even  though 
rejected,  left  the  public  more  than  ever  convinced 
of  the  determination  of  such  capitalists  to  control  our 
fiduciary  institutions.  * 

We  have  seen  in  what  frame  of  mind  the  American 
public  regarded  these  various  episodes  in  high  finance. 
It  was  a  mixture  of  misgiving,  exasperation,  and  help- 
lessness; for  belief  was  general,  in  such  periods  of 
industrial  consolidation  as  1899  and  1901,  that  the 
interests  behind  the  movement  were  as  strongly  in- 
trenched in  politics  as  in  finance.  What  the  outcome 
would  have  been  in  our  political  history,  had  the 
conditions  which  people  then  described  as  the  "  existing 
order  of  things"  continued  to  prevail  at  Washington, 
is  a  question  full  of  interest.    We  possess  no  means 

»  Testimony  of  Thomas  F.  Ryan  and  E,  H.  Harriman; 
Armstrong  Report,  pp.  4562  and  5144. 


342  American  Finance  n902 

of  judging  confidently  how  far  President  McKinley's 
policies,  after  his  second  inauguration  in  1901,  might 
have  been  shaped  or  altered  by  the  new  industrial 
problems  which  came  suddenly  into  view  that  year. 
All  we  can  say  is,  that  his  traditions  and  temperament 
were  not  such  as  to  have  invoked  a  collisioiv  between 
the  Executive  and  the  corporations.  The  question 
was  never  tested;  it  was  only  five  months  after  his 
second  term  began  that  he  was  shot  by  an  anarchist 
at  Buffalo,  where  he  died  on  September  14,  1901. 

Mr.  Roosevelt,  who  then  succeeded  him,  had  been 
nominated  for  Vice-President  against  his  own  wish  and 
therefore  without  pledges  or  commitments.  His  long 
record  in  public  life — as  legislator  at  Albany,  Civil  Ser- 
vice Commissioner  at  Washington,  Police  Commissioner 
at  New  York  City,  Assistant  Secretary  of  the  Navy, 
Colonel  in  the  Spanish  War,  and  Governor  of  New 
York  State — had  presented  him  to  the  people  as  a  man 
of  abounding  energy,  of  vehement  ideas  on  a  great 
variety  of  subjects,  of  party  regularity  but  independent 
leanings,  and  with  a  liking  for  both  social  and  political 
innovation.  Knowledge  of  these  qualities  caused  some 
financial  perturbation  when  he  rose  to  the  Presidency 
on  McKinley's  death.  In  his  speech  on  taking  the 
oath  of  office,  however,  Mr.  Roosevelt  declared  his 
purpose  "to  continue  absolutely  unbroken  the  policy 
of  President  McKinley  for  the  peace,  prosperity,  and 
honor  of  our  beloved  country, "  and  he  at  once  requested 
all  of  McKinley's  cabinet  ministers  to  retain  office  dur- 
ing the  full  term  for  which  they  had  been  selected.    In 


I90«j  President  Roosevelt  343 

his  first  message  to  Congress,  two  months  later,  he 
declared  the  "startling  increase  ...  in  the  number  of 
very  large  individual,  and  especially  of  very  large  cor- 
porate, fortunes"  to  be  due  "to  natural  causes  in 
the  business  world" — a  process  which  "has  aroused 
much  antagonism,  a  great  part  of  which  is  wholly 
without  warrant."  He  advised  "caution  in  dealing 
with  corporations,"  because  "to  strike  with  ignorant 
violence  at  the  interests  of  one  set  of  men  almost 
inevitably  endangers  the  interests  of  all, "  and  because 
"  the  mechanism  of  modern  business  is  so  delicate  that 
extreme  care  must  be  taken  not  to  interfere  with  it  in 
a  spirit  of  rashness  or  ignorance."* 

All  this  was  reassuring  to  those  capitalists  whose 
plans  had  apparently  been  disconcerted  by  McKinley's 
death.  They  paid  less  attention,  therefore,  to  the 
new  President's  further  declarations  that  "there  are 
real  and  grave  evils,  one  of  the  chief  being  overcapital- 
ization"; that  "combination  and  concentration  should 
be,  not  prohibited,  but  supervised  and  within  reasonable 
Hmits  controlled,"  and  that  "corporations  engaged 
in  interstate  conunerce  should  be  regulated  if  they 
are  found  to  exercise  a  license  working  to  the  public 
injury.  "2  It  was  out  of  these  three  declarations, 
however,  that  what  are  now  known  as  the  policies  of  the 
Roosevelt  Administration  grew. 

These  policies  soon  placed  the  Government  in  direct 
and  formidable  antagonism  with  the  ambitious  designs 
of  capitalists  which  we  have  already  had  occasion  to 

>  Annual  Message,  Dec.  3,  1901,  *  Ihid. 


344  American  Finance  [1906 

review.  The  case,  in  my  opinion,  was  such  that  any 
and  all  available  measures  for  protection  of  the  public 
welfare  would  have  been  invoked  by  any  government 
resolved  on  challenging  the  pretensions  of  the  great 
promoters  of  the  day.  The  instrument  selected  as  the 
most  serviceable  on  the  statutes  was  the  so-called 
"Sherman  Anti-Trust  Law"  of  1890,  and,  since  that 
law  was  largely  made  the  basis  of  the  Government's 
subsequent  moves  against  over-ambitious  corporations, 
under  the  Roosevelt  regime,  the  law  itself  requires  some 
careful  examination. 

The  Anti-Trust  Law  was  introduced  by  Senator 
John  Sherman  on  March  21,  1890.  It  was  drawn  up 
in  response  to  the  very  strong  pubhc  feeling  excited 
by  the  movement  of  that  day,  to  which  I  have  heretofore 
referred,  for  combination  of  manufacturing  enter- 
prises in  this  country  into  single  powerful  corporations. 
From  the  debates  on  the  bill,  it  is  evident  that  the 
legislators  had  in  mind  primarily  such  industrial  under- 
takings, and  not  combinations  of  the  railways.^  This 
was  not  strange,  in  view  of  the  novelty  of  the  phenome- 
non of  industrial  trusts,  of  the  pledge  of  political  con- 
vention platforms  to  restrain  the  powers  of  such 
amalgamations,  and  of  the  fact  that  railway  combina- 
tions were  not  an  incident  of  the  period.  With  the 
railways  of  1890,  indeed,  the  problem  was  rather  to 
make  both  ends  meet  in  the  finances  of  any  given 
company,  than  to  reach  out  for  acquisition  of  com- 

«  Senate  speeches,  John  Sherman,  W.  B.  Allison,  George 
O.  Vest,  March  31,   1890. 


18901  The  Anti-Trust  Law  345 

petitors.  *  But  on  the  other  hand,  the  legislation  of 
1890  unquestionably  did  not  exclude  the  railways — z. 
point  of  much  importance  in  its  bearing  on  subsequent 
discussion.  As  originally  proposed,  the  Act  of  1890 
declared  illegal  "all  arrangements,  contracts,  agree- 
ments, trusts,  or  combinations  ...  to  prevent  full 
and  free  competition,"  not  only  in  the  sale  of  articles 
of  production  and  manufacture,  but  in  their  trans- 
portation. ^  As  finally  amended  and  enacted,  the 
law  made  the  very  broad  declaration  that  "every  con- 
tract, combination  in  form  of  trust  or  otherwise,  or 
conspiracy,  in  restraint  of  trade  or  commerce  among 
the  several  states  or  with  foreign  nations,  is  hereby 
declared  to  be  illegal,"  and  it  declared  it  to  be  the  duty 
of  the  federal  attorney-general  and  the  several  district 
attorneys  "to  institute  proceedings  in  equity  to  pre- 
vent and  restrain  such  violations."^ 

It  was  alleged,  in  the  controversy  during  and  after 
1902,  in  the  courts  and  in  the  press,  that  since  Congress 
manifestly  had  the  industrial  trusts  in  mind  in  framing 
its  legislation,  the  law  of  1890  did  not  fairly  apply  to 
railways.  But  the  United  States  Supreme  Court,  in 
upholding  in  1897  a  suit  against  the  so-called  Trans- 
Missouri  Freight  Association,  whereby  the  railways  of 
that  section  undertook  to  prescribe  uniform  rates, 
declared  that  "we  see  nothing  either  in  contempo- 

«  Jay  Gould,  interview  in  New  York  Tribune,  March  13, 
1889. 

2  Congressional  Record,  March  21,  1890,  p.  »45S. 
»  Act  of  July  2,  1890. 


346  American  Finance  [1902 

raneous  history,  or  in  the  legal  situation  at  the  time 
of  the  passage  of  the  statute,  in  its  legislative  history, 
or  in  any  general  difference  in  the  nature  or  kind  of 
these  trading  and  manufacturing  companies  from  the 
raihoad  companies,  which  would  lead  us  to  the  con- 
clusion that  it  cannot  be  supposed  the  legislature  .  .  . 
intended  to  include  railroads  within  the  purview  of  the 
Act."  ^  Out  of  five  leading  cases  decided  against  the 
companies  by  the  Supreme  Court  under  the  Law  of 
1890,  up  to  1902,  two  were  directly  concerned  with 
railway  agreements  or  combinations,  and  a  third  re- 
sulted in  the  declaration  that  the  law  covered  "inter- 
course for  all  the  purposes  of  trade,  in  any  and  all  its 
forms,  including  the  transportation,  purchase,  sale, 
and  exchange  of  commodities  between  citizens  of  differ- 
ent states.  "2 

It  was  clear,  then,  that,  in  the  opinion  of  the  highest 
court,  the  Anti-Trust  Law  applied,  not  alone  to  in- 
dustrial but  to  railway  combinations.  We  have  seen 
to  what  extent,  under  the  auspices  of  the  ambitious 
railway  promoters  of  1901  and  1906,  this  consolida- 
tion movement  had  gone  forward,  and  to  what  results 
it  seemed  to  point.  In  large  measure,  the  subsequent 
moves  of  the  Roosevelt  Administration's  law  de- 
partment were  concerned  with  the  industrial  trusts 
or  combinations;  but  it  was  not  illogical  that  in  1902, 
its  first  challenge  should  have  been  directed  against 

>  Justice  Peckham,  majority  opinion,  March  22,   1897. 
»  U.   S.   Supreme    Court,  majority  opinion  Northern  Se- 
curities w.  the  United  States,  March  14,  1904, 


t902]  Norther 71  Securities  Suit  347 

these  railway  projects.  The  note  was  sounded  in  Febru- 
ary,  1902,  when  the  Attorney-General,  Mr.  P.  C.  Knox, 
entered  suit  for  the  Government  against  the  Northern 
Securities  Company.  This  concern  was  an  outgrowth 
of  the  famous  "Northern  Pacific  corner"  of  May  9, 
1901,  when  the  disastrous  contest  between  the  Harriman 
and  Morgan  interests,  for  ownership  of  the  Northern 
Pacific  Railway,  was  compromised  by  deposit  of  their 
stock  and  that  of  the  parallel  Great  Northern  Railway 
Company  in  the  hands  of  a  holding  corporation.  This 
corporation  had  a  stock  of  $4oo,cxx>,ooo,  which  it 
exchanged  for  shares  in  the  two  railways;  its  directors 
were  selected  from  the  rival  boards. 

Mr.  Knox  attacked  the  merger  as  "a  virtual  con- 
solidation of  two  competing  transcontinental  lines," 
whereby  not  only  would  "monopoly  of  the  interstate 
and  foreign  commerce,  formerly  carried  on  by  them 
as  competitors,  be  created,"  but  whereby,  through 
use  of  the  same  machinery,  "  the  entire  railway  systems 
of  the  country  may  be  absorbed,  merged,  and  con- 
solidated."^ A  year  after  its  introduction,  on  April 
9,  1903,  the  Circuit  Court  before  which  the  suit  was 
brought  decided  for  the  Government,  the  essential  part 
of  its  decision  being  the  dictum  that  the  merger  "de- 
stroyed every  motive  for  competition  between  the  two 
roads  engaged  in  interstate  traffic,  which  were  nat- 
ural  competitors   for   business." 2    Appealing  thence 

>  Petition  of  U.  S.  Government  vs.  Northern  Securities 
Company  et  al.,  in  Circuit  Court  for  District  of  Minnesota, 
March  10,  190a. 

»  Opinion  of  Judge  Thayer,  120  Federal  Reports,  721,  725. 


348  American  Finance  11904 

to  the  Federal  Supreme  Court,  the  company's  counsel 
fought  on  the  theory  that  the  merger  was  no  restraint 
of  trade  because  the  Northern  Securities  had  com- 
mitted no  overt  act  in  such  direction,  and  because 
the  combination  had  primarily  been  formed  to  protect 
and  develop  trade.  ^  The  court,  in  its  decision  of 
March  14,  1904,  found  that,  "necessarily,  the  con- 
stituent companies  ceased,  under  such  a  combination, 
to  be  in  active  competition  for  trade  and  commerce," 
and  that,  independently  of  overt  acts,  "the  mere  ex- 
istence of  such  a  combination,  and  the  power  acquired 
by  the  holding  company,  .  .  .  constitute  a  menace  to, 
and  a  restraint  upon,  that  freedom  of  commerce  which 
Congress  intended  to  recognize  and  protect. "  ^ 

In  a  bench  of  nine,  four  justices  ruled  on  this  ground 
against  the  appeal  and  four  in  favor  of  it.  The  ninth 
member.  Justice  Brewer,  dissented  from  the  larger 
application  of  the  above-cited  principles,  on  the  ground 
that  "the  broad  and  sweeping  language  of  the  opinion 
of  the  court  might  tend  to  unsettle  legitimate  business 
enterprises,  stifle  or  retard  wholesome  business  ac- 
tivities," and  he  rejected  the  application  of  the  Anti- 
Trust  Law  to  "minor  contracts  in  partial  restraint 
of  trade,"  already  recognized  by  common  law.  But 
he  held  the  Northern  Securities  device  to  be  one  which 
"might  be  extended  until  a  single  corporation  whose 
stock  was  owned  by  three  or  four  parties  would  be 
in  practical  control  ...  of  the  whole  transportation 

«  Argument  of  John  G.  Johnson,  Dec.  14,  1903. 
>  Opinion  of  Mr.  Justice  Harlan. 


19041  Railway  Merger  Dissolved  349 

system  of  the  country,"  and  on  that  ground  concurred 
in  dismissing  the  appeal.  The  order  of  the  lower 
court,  that  the  Northern  Securities  Company  be 
dissolved,  was  therefore  reaflSrmed.  In  due  course, 
though  not  until  after  another  legal  fight  over  methods 
of  redistributing  its  holdings  to  owners  of  Northern 
Securities  shares,  the  company  surrendered  its  North- 
ern Pacific  and  Great  Northern  stock,  and  practically 
went  out  of  existence. 

It  was  a  victory  of  high  importance,  and  a  check, 
whose  completeness  was  not  fully  recognized  at  first, 
to  the  effort  of  consolidated  capital  to  seat  itself  in 
complete  and  impregnable  control  of  industry.  Much 
was  made,  by  critics  of  the  Administration's  attitude, 
of  the  fact  that  redistribution  of  the  holdings  left  the 
Morgan  and  Harriman  interests  still  in  possession  of 
their  part  of  the  disputed  shares.  But  this  argument 
overlooked  the  facts  that  the  stocks  were  now  again 
very  largely  on  the  open  market,  and  that  the  most 
promising  machinery  ever  contrived  for  complete  event- 
ual monopoly  had  been  shattered.  In  my  judgment, 
the  overthrow  of  the  Northern  Securities  combination 
was  the  most  positive  achievement  of  the  Roosevelt 
Administration  in  the  field  of  corporation  finance. 
It  was  something  more  even  than  protection  of  the  citi- 
zen from  the  aggression  of  capital  suggested  by  Justice 
Brewer;  the  interest  of  investors,  of  the  financial  mar- 
kets themselves,  would  have  been  placed  in  the  most 
serious  jeopardy  had  that  merger  been  upheld.  For 
the  promoters  of  the  Northern  Securities  were  travel- 


350  American  Finance  n906 

ling  on  a  path  of  capital  inflation  which  logically  had 
no  end  except  in  eventual  exhaustion  of  credit  and 
general  bankruptcy. 

The  Northern  Securities  victory  by  no  means  ended 
the  activities  of  the  Government  prosecutors  against 
corporations,  though  no  subsequent  achievement  was  of 
equal  importance.  To  a  large  extent,  the  later  moves 
of  the  Roosevelt  Administration  had  to  do  with  secret 
discriminations  in  railway  rates.  In  some  of  these 
suits  the  gravity  of  the  abuse  was  not  so  clear,  and  in 
others  the  outcome  much  less  gratifying,  than  in  the 
Northern  Securities  case.  The  Standard  Oil  prose- 
cution, announced  by  the  President  in  a  special  message 
of  May  4,  1906,  ended  in  such  a  way  as  largely  to  defeat 
the  Government's  own  purposes.  The  exploits  of  the 
Standard  Oil  Company,  in  the  matter  of  secret  con- 
cessions from  the  railways,  had  been  exposed  sensa- 
tionally in  the  popular  magazines,  and  the  Government 
won  a  jury  verdict,  in  August,  1907,  wholly  against  the 
company.  The  Elkins  Law,  on  which  the  suit  was 
based,  provided  that  "every  person  or  corporation 
who  shall  offer,  grant,  give  or  solicit,  accept  or  receive  '* 
from  a  railway  any  "  rebates,  concession,  or  discrimina- 
tion," should  on  conviction  be  punished  for  each 
offence  by  a  fine  of  not  less  than  $1000  or  more  than 
$20,000. " 

Judge  Landis,  sitting  in  the  Federal  District  Court 
of  Indiana,  had  to  pass  on  the  question  how  many 
separate  oflFences  were  to  be  subject  to  such  fine.  The 
railway  rebates  had  been  granted  during  the  period 


1907]        Standard  Oil's  Enormous  Fine       351 

from  September,  1903,  to  March,  1905,  inclusive; 
counsel  for  the  company  asked,  first,  that  the  whole 
series  be  adjudged  one  infraction  of  the  law,  or,  second, 
that  the  violations  be  fixed  at  three  in  number,  be- 
cause the  rate  was  determined  once  a  year,  or,  third, 
that  the  number  be  declared  as  thirty-six,  because  that 
number  of  bills  were  rendered.  The  court  rejected  all 
three  suggestions;  declared  on  August  3,  1907,  that  each 
of  the  1,462  loaded  cars  forwarded  at  the  discriminating 
rate  was  a  separate  offence;  imposed  for  each  the  maxi- 
mum fine  of  $20,000,  and  thereby  arrived  at  the  some- 
what extraordinary  penalty  of  $29,240,000.  This  fine, 
imposed  as  it  was,  not  on  the  $98,000,000  "Standard 
Oil  Trust,"  but  on  the  immediate  offender,  the 
$1,000,000  subsidiary  Standard  Oil  Company  of  Indiana, 
went,  even  in  the  popular  judgment  of  the  day,  beyond 
the  bounds  of  reason;  it  was  commonly  expected  that 
the  higher  courts  would  set  it  aside,  and,  as  a  matter 
of  fact,  the  Illinois  Circuit  Court,  in  July,  1908,  found 
that  a  fine  thus  computed  "  had  no  basis  in  any  inten- 
tion or  fixed  rule  discoverable  in  the  statute,"  and 
was  many  times  confiscatory.  The  Court  to  whom 
the  case  was  remanded  for  retrial  directed,  in  March, 
1909,  a  verdict  of  acquittal  for  lack  of  proper 
evidence. 

In  this  matter,  despite  an  overwhelming  and  not 
unfounded  dislike  to  the  methods  of  the  Standard  Oil 
Company,  public  sympathy  was  with  the  corporation. 
On  the  railway  rate  legislation,  passed  by  Congress 
in  response  to  the  President's  urgent  messages,  popular 


352  American  Finance  [19O6 

approval  and  disapproval  were  more  evenly  balanced 
than  in  the  two  great  suits  above  referred  to.  There 
had  been  abundant  provocation  in  the  past  relations 
of  numerous  important  railways  with  favored  com- 
munities and  favored  corporations;  the  demand  for 
regulation  was  urgent,  in  the  West  especially;  and  the 
Hepburn  Act,  passed  by  the  House  in  February,  1906, 
by  a  vote  of  346  to  7,  and  by  the  Senate  in  June,  on  a 
vote  of  71  to  3,  authorized  the  Inter-State  Commerce 
Commission,  on  complaint,  "  to  determine  and  prescribe 
what  will  be  the  just  and  reasonable  rate  or  rates  ...  to 
be  thereafter  observed  in  such  case  as  the  maximum 
to  be  charged. "  It  further  declared  that  for  each  vio- 
lation of  the  laws  by  a  railway's  officer  or  agent  a  fine 
of  $5000  should  be  imposed,  and  that "  every  distinct 
violation  shall  be  a  separate  offence,  and  in  case  of  a 
continuing  violation,  each  day  shall  be  deemed  a  sepa- 
rate offence."  This  law  is  an  important  landmark, 
because  the  railway  interests  have  ever  since  ascribed 
to  it,  and  to  the  sweeping  powers  conferred  on  the 
inter-state  tribunal,  the  financial  disorder  of  the  ensu- 
ing year.  It  became,  in  1908  and  1909,  the  common- 
place of  every  annual  railway  report  to  ascribe  the 
panic  of  1907,  and  the  reduced  railway  traffic  which 
ensued,  to  the  Hepburn  Law  of  1906. 

The  law  was  undoubtedly  regarded  with  much  mis- 
giving by  the  railways;  it  was  dissected  and  opposed, 
on  grounds  of  constitutionality,  of  the  rights  of  prop- 
erty, and  of  the  dangerous  public  policy  invoked  through 
committing  such  powers  to  a  board  of  commissionersj 


1906]     The  Hepburn  Railway  Rate  Law     353 

by  some  of  the  ablest  Congressional  lawyers.^  Yet 
it  is  not  easy  to  doubt,  conditions  being  what  we  have 
seen  them  to  be  in  the  great  corporations  of  the  coun- 
try, that  the  gbod  results  of  the  Government's  policy, 
taken  as  a  whole,  very  far  outweighed  the  incidental 
evils.  In  the  case  particularly  of  the  great  combinations, 
the  dangers  and  abuses  which  existed  were  most 
formidable;  it  may  be  questioned  whether  a  cautious  and 
deliberate  policy  of  restriction  would  have  stopped 
them.  Much  was  achieved  for  the  general  welfare 
by  the  mere  assurance  that  the  Government's  hand 
would  be  laid  instantly  and  heavily  on  the  conspicuous 
offenders,  and  the  people  at  large,  who  understood  the 
gravity  of  the  situation  better  than  Wall  Street  under- 
stood it,  had  reason  for  their  overwhelming  support 
of  Mr.  Roosevelt's  general  plan  of  action. 

As  for  the  theory  that  the  Rate  Law  caused  financial 
disaster  and  collapse  of  credit,  that  theory  may  be 
readily  tested  by  reviewing  the  actual  response  of  the 
markets  to  the  legislation.  The  Hepburn  Act  became 
law  in  July,  1906.  Its  enactment,  on  the  theory  sup- 
posed, should  have  been  preceded  and  followed  by 
immediate  withdrawal  of  foreign  capital  from  our 
railway  industries,  and  by  wholesale  liquidation  of  such 
investments  by  American  investors.  What  followed, 
on  the  contrary,  was  such  excess  of  confidence  in  our 
investments,  on  the  part  of  European  money-lenders, 
that  almost  all  traditional   restraint   was   abandoned 

«  Senate  speeches:  J.  B.  Foraker,  Feb.  28,  1906;  P.  C. 
Knox,  Mar.  28;  J.  C.  Spooner,  Apr.  27. 


354  American  Finance  (1906 

in  the  advancing  of  money  to  the  great  railway  opera- 
tors who  were  dominating  Wall  Street.  The  facilities 
thus  provided  were  used  to  the  full.  Instead  of  realizing 
on  the  investments  which  they  declared  to  be  jeopar- 
dized through  Mr.  Roosevelt's  activities,  certain  rail- 
way managers,  who  were  as  active  in  Wall  Street 
speculation  as  they  were  in  transportation  matters, 
started  a  speculation  for  the  rise  during  August,  1906, 
in  shares  of  the  very  railways  affected  by  the  law,  which 
reached  such  proportions  as  to  alarm  the  whole  con- 
servative community.  That  is  to  say,  the  administra- 
tive and  legislative  action  which  is  presumed  to  have 
been  a  cause  of  financial  trouble  was,  in  the  immedi- 
ate sequel,  followed  by  enthusiastic  confidence,  by 
increased  credit  facilities,  and  by  unbridled  specula- 
tion for  the  rise.  It  remains  to  inquire  what  was  the 
real  cause  for  this  singular  response,  and  to  see  how 
the  extraordinary  financial  situation  which  had  arisen 
throughout  the  world  was  now  to  end. 


CHAPTER  XV 

THE  PANIC  OF  I907 

WE  have  seen  what  warnings  were  finding  utter- 
ance during  1906,  both  in  the  comments  of 
experienced  critics  and  in  the  action  of  the  money 
markets,  as  to  a  possible  approaching  crisis.  The 
powerful  capitalists  who  were  conducting  the  Ameri- 
can speculation  of  the  day  paid  no  heed  to  them. 
Nor,  apparently,  did  financial  Europe,  where  it  was 
stated  on  the  highest  banking  authority,  in  the 
middle  of  1906,  that  the  United  States,  if  it  wished, 
"can  borrow  from  Europe  to  a  practically  unlimited 
extent  this  season."^  This  promise  was  made  good. 
Serious  estimates  of  the  use  of  outside  capital,  in  con- 
nection with  Wall  Street's  undertakings  of  the  season, 
name  sums  which  bewilder  the  imagination.  Credit 
for  upwards  of  $500,000,000  was  asserted  in  conser- 
vative quarters  to  have  been  obtained  from  Europe,  ^ 

1  Berlin  correspondence  New  York  Evening  Post,  July  31, 

1906,  Financial  Section,  p.  i. 

2  Alexander  Gilbert,  President  of  New  York  Clearing  House, 
speech  to  New  York  State  Bankers'  Association,  Jan.   27, 

1907.  London  correspondence  New  York  Evening  Post,  Oct. 
27,  1906,  Financial  Section,  p.  i. 

353 


356  American  Finance  tl906 

and  a  private  investigation  by  the  New  York  Clearing 
House  Association  showed  that  not  less  than  $300,000,- 
000  in  loans  had  been  placed  at  New  York  by  our  own 
interior  banks.  ^ 

It  can  hardly  be  supposed  that  all  of  this  huge  sum 
was  devoted  to  Stock  Exchange  speculation  pure  and 
simple;  but  the  speculators  none  the  less  relied  on 
it  to  protect  them  against  the  handicap  of  the  rapidly 
dwindling  surplus  reserves  of  New  York  banks.  Their 
position  was  fortified  in  another  way.  The  Union 
Pacific  Railway,  having  received  its  share  of  Northern 
Pacific  and  Great  Northern  stocks  in  the  Northern 
Securities  liquidation,  had  sold  a  good  part  of  them 
in  the  market.  As  a  consequence,  the  company  held, 
on  June  30,  1906,  in  cash  and  money  loaned  on  call,  the 
sum  of  $55,968,000,  as  against  $7,345,000  twelve  months 
before.  ^  It  embarked  this  mass  of  capital  in  purchase 
of  railway  shares  such  as  New  York  Central,  Atchison, 
Topeka  &  Santa  Fe,  and  Baltimore  &  Ohio, — all 
of  them  active  centres  of  speculation,  some  of  them 
apparently  procured  from  holdings  of  "inside"  finan- 
ciers, others  from  the  open  market.  3  Not  content  with 
this,  the  Union  Pacific  management  borrowed  $75,000,- 
000  more  on  its  notes  and  used  the  proceeds  similarly. 
In  all,  $131,970,000  was  thus  thrown  into  railway 
stocks  by  the  Union  Pacific,  under  the  auspices  of  Mr. 

«  Gilbert  speech. 

» Annual  Report  for  1906,  Union  Pacific  Railroad  Company. 
» Report  of  Commissioner  Lane,  Int.  Com,  Ref.  Nq.  943, 
pp.  17,  19,  20. 


1906]  Speculation  on  Eve  of  Panic  357 

Harriman,  its  chairman,  between  June  30,  1906,  and 
February  28,  1907.  * 

In  August,  1906,  the  Union  Pacific's  annual  dividend 
was  suddenly  and  unexpectedly  increased  from  6  to  10 
per  cent.,  and  a  speculation  of  excessive  violence  en- 
sued on  the  Stock  Exchange.  It  was  believed  to  be 
conducted  under  the  personal  leadership  of  the  com- 
pany's controlling  interests.  Union  Pacific  stock  rose 
35  points  within  a  fortnight;  numerous  other  stocks  10 
points  or  thereabouts;  and  then,  as  they  ought  to  have 
expected,  the  speculators  heard  from  the  money  mar- 
ket. Such,  indeed,  was  the  strain  now  imposed  on 
bank  resources  that,  before  the  month  was  over,  not 
only  Wall  Street  demand  loans,  but  merchants'  dis- 
counts, commanded  the  highest  rate  reached  during 
August,  outside  of  actual  panic,  in  more  than  thirty 
years.  With  the  opening  of  September,  the  New  York 
banks  reported  a  deficit  in  reserves.  The  United 
States  Treasury  was  urgently  appealed  to  for  relief, 
and  Secretary  Shaw  responded  by  depositing  Govern- 
ment surplus  funds  in  banks  which  promised  to  use 
them  for  importing  gold.  The  very  large  credits 
raised  abroad  by  Wall  Street  bankers  made  this  opera- 
tion feasible;  in  September,  no  less  than  $36,000,000 
gold  was  engaged  in  Europe  for  New  York. 

This  was  apparently  a  turn  in  events  for  which 
Europe  had  not  looked,  but  which  those  European 
bankers,  who,  in  the  glamour  of  seemingly  invincible 

«  Report  of  Commissioner  Lane,  Int.  Com.  Rep.  No.  943,  p. 
20.   Annual  Report  for  .1907,  Union  Pacific  Railroad  Company, 


358  American  Finance  [1906 

speculative  success,  had  equipped  the  great  manipu- 
lators of  American  values,  had  themselves  invited.  Its 
first  result  was  the  crumbling  away  of  the  Bank  of 
England's  reserve,  which  fell,  at  October's  opening, 
to  very  much  the  lowest  level  reached  at  that  date 
since  1893,  its  ratio  to  deposits  being  only  35^  per 
cent. — ^an  abnormally  weak  position  for  the  autumn 
season.  On  October  nth  the  bank  rate  rose  from 
4  to  5  per  cent.,  and  on  the  19th,  at  a  special  meeting 
of  the  governors,  from  5  to  6 — the  last-named  rate 
having  been  reached  only  twice  since  1873,  in  the 
London  panic  of  1890  and  the  Boer  War  panic  of 
1899.1  Lombard  Street's  own  position  was  openly 
declared  to  be  the  worst  since  1890. 2  In  London,  it  was 
an  open  secret  that  the  Bank  had  warned  the  London 
joint-stock  institutions  to  call  a  halt  in  their  granting 
of  wholesale  credits  to  New  York,  and  had  threatened 
a  7  per  cent,  bank  rate  if  the  warning  was  not  heeded.^ 
Fortunately  for  London,  it  was  heeded,  and  one  main- 
stay of  the  American  speculation  was  cut  off.  The 
rise  on  the  Stock  Exchange  stopped  abruptly;  it  now 
began  to  look  as  if  the  great  speculators  had  got  them- 
selves in  a  trap.    For  exhaustion  of  credit  resources 

>  London  cable  to  '^&vfYox\!i  Evening  Post,  Oct.  20,  1906. 
Financial  Section,  p.  i.     See  article  on  same  page. 

»  Ibid.  See  also  London  Economist,  Oct.  20,  1906,  pp. 
1693  and  1694. 

»  London  cable  to  New  York  Evening  Post,  Nov.  3,  1906. 
London  Economist,  Oct.  20,  1906,  p.  1694;  Berlin  letter,  Oct. 
13,  p.  1668;  Commercial  Review  of  1906,  Feb.  16,  1907, 
p.  6.  London  correspondence  New  York  Financial  Chroni' 
cle,  Nov.  17,  1906,  p.  1207;  Nov.  34,  p.  1268. 


1906]      Railways  Unable  to  Place  Loans       359 

now  began  to  make  itself  felt  in  other  quarters  than 
the  stock  market.  The  railway  companies,  imbued 
with  the  spirit  of  the  times,  had  been  laying  plans  of 
the  most  ambitious  scope  for  improvement  and  ex- 
tension. One  of  the  most  eminent  of  the  railway  presi- 
dents had  publicly  declared  that,  in  order  to  avert 
such  "commercial  paralysis"  as,  "long  continued, 
would  mean  slow  commercial  death,"  they  must  raise 
not  less  than  one  thousand  million  dollars  of  new 
capital  per  annum  during  the  next  five  years.  ^  This 
estimate  compared  with  a  total  borrowing  of  less  than 
$500,000,000  even  in  such  a  year  as  1901,  and  with 
an  average  of  only  $700,000,000  in  the  five  ensuing 
years.  2  But  Mr.  Hill's  prediction  had  been  scarcely 
uttered  when  the  railways  suddenly  found  the  money 
market  shut  against  their  stocks  and  bonds.  Un- 
luckily, most  of  the  companies  had  already  committed 
themselves  to  the  costly  undertakings,  on  the  basis  of 
borrowings  from  the  open  market.  ^  In  any  case,  they 
had  to  meet  that  indebtedness.  This  was  exactly 
what  brought  the  crisis  in  the  panic  of  1873,  when 
Jay  Cooke  &  Co.  and  the  Northern  Pacific  Railway 
both  went  down  under  a  mass  of  floating  debt  which 
could  not  be  extended;^  it  was  what  caused  the  three 

•  James  J.  Hill,  speech  to  Merchants'  Club  of  Chicago, 
Nov,  10,  1906,  New  York  Financial  Chronicle,  Nov.  17,  1906, 
p.  1 198. 

'  Poor's  Manual  of  Railroads,  1907,  p.  xvi. 

*  James  J.  Hill,  interview  in  New  York  Tribune,  June  14, 
1907. 

«  New  York  Financial  Chronicle,  Sept.  20,  1873,  p.  382. 


360  American  Finance  [1907 

largest  railway  failures  of  1893.^  As  their  floating 
debt  of  1906  approached  maturity,  the  railways  made 
vigorous  efforts  to  avert  the  impending  crisis  from 
themselves,  and  the  efforts  were  successful,  but  only 
through  the  placing  of  notes  with  one  to  three  years 
to  run,  at  interest  rates  which  ranged  from  5  to  7  per 
cent.,  plus  a  heavy  bankers'  commission.  During  the 
first  half  of  1907,  no  less  than  $299,000,000  was  raised 
on  this  insecure  and  temporary  basis. ^  Meanwhile, 
in  March,  1907,  and  again  in  August,  there  occurred 
on  the  Stock  Exchange  sales  so  enormous,  and  at  such 
sacrifice  of  values,  as  to  convince  the  experienced  Wall 
Street  man,  despite  official  denials,  that  forced  liquida- 
tion by  the  largest  financiers  was  under  way.  3 

We  have  learned,  in  another  chapter,  to  what  extent 
the  conditions  prevalent  in  America  had  prevailed 
in  other  communities.  The  money-market  crisis  at  the 
end  of  1906  had  brought  the  reckoning  in  those  markets 
also,  and  in  1907  their  structure  of  inflated  credit  set 
the  example  of  collapse.  Egypt  went  first.  In  April, 
1907,  this  was  the  course  of  events  at  Alexandria,  as 
described  by  a  competent  observer  on  the  spot: 

"  The  financial  crisis  threatening  Egypt  since  January 
culminated,  at  the  beginning  of  the  present  week,  in  a  dead- 
lock from  which  it  seemed  impossible  for  the  market  to  ex- 

>  See  pp.  188  and  218. 

'  New  York  Evening  Post,  June  29,  1907,  Financial  Section, 
p.  4- 

^ 'New  York  Financial  Chronicle,  March  16,  1907,  p.  610; 
New  York  Tribune,  March  15,  p.  i,  March  16,  p.  i ;  New  York 
Evening  Post,  March  16,  1907,  Financial  Section,  p.  i. 


1907]  Panics  on  Foreign  Markets  361 

tricate  itself.  Piles  of  shares  were  waiting  to  be  sold,  though 
the  market  was  so  satiated  with  paper  that  the  oflfer  of 
threescore  shares  in  any  security  sent  down  quotations  whole 
points.  It  was  equally  difficult  at  one  time  to  buy.  It  was 
well  known  that  a  number  of  small  houses  were  tottering, 
and  when  the  crisis  became  most  acute,  one  of  these  firms 
suspended  payments."' 

A  "hoarding  panic"  followed,  which  was  broken 
only  by  instantaneous  shipment  of  $3,000,000  gold  from 
London.  2  "  The  consequences  of  the  crisis, "  said  the 
Chairman  of  the  Bank  of  Egypt,  at  the  shareholders* 
annual  meeting  later  on,  "  were  felt  not  only  by  the  per- 
sons immediately  concerned  in  the  speculative  business 
which  had  been  going  on,  but  by  all  other  undertakings 
in  Egypt.  "3  In  May  of  1907,  runs  of  depositors  at 
the  Egyptian  capital  began,  and  one  of  the  important 
banks  was  compelled  to  close  its  doors.  The  situation 
was  epitomized  by  an  important  Egyptian  financier 
in  these  words:  "We  have  been  working  beyond  our 
means,  by  using  capital  which  was  not  ours."* 

At  almost  exactly  the  same  time,  and  on  the  other 
side  of  the  world,  the  Japanese  market  was  similarly 
falling  into  panic.  The  review  of  the  episode,  by  the 
Governor  of  the  Bank  of  Japan,  thus  described  what 
happened: 

"From  the  second  half  of  the  preceding  year  (1906)  when  the 
fever  of  enterprise  rose  high  and  when  various  causes  contrib- 


»  London  Economist,  April  27,  1907,  p.  720. 
>  Ibid.,  July  6,  1907,  p.  1138. 
»  Annual  meeting,  London,  March  6,  1908. 
*  Statement  of  Harari  Pasha,  Jvily  4,  1907. 


362  American  Finance  [1907 

uted  to  aggravate  it,  men  of  judgment  had  already  begun  to 
look  askance  at  this  state  of  affairs.  But  as  there  were  no 
means  to  check  the  trend  of  public  feeling,  it  continued.  To 
our  deep  regret,  nevertheless,  in  May  and  June  some  banks 
were  compelled  to  suspend  payment  because,  the  root  of 
their  trouble  being  deep-seated,  no  means  of  getting  efficient 
succor  were  available."* 

On  October  17,  1907,  there  occurred  in  Hamburg 
what  a  correspondent  of  the  London  Economist  de- 
scribed as  "the  biggest  financial  disaster  that  had 
overtaken  the  city  since  1857."  2  a  few  weeks  later 
the  same  correspondent  continued  the  story: 

"  Since  the  first  severe  shock  to  credit  was  experienced  here 
some  weeks  ago,  in  the  downfall  of  Messrs.  Haller,  Soehle  & 
Company,  it  was  fully  expected  that  many  other  firms  would 
feel  the  strain  of  8  per  cent,  and  lo  per  cent,  money  almost 
to  breaking  point,  and,  indeed,  suspensions  of  important 
commercial  and  industrial  firms  have  since  then  multiplied, 
both  here  and  in  other  parts  of  Germany."* 

These  three  foreign  panics  occurred,  it  will  be  no- 
ticed, in  Europe,  in  Asia,  and  in  Africa, — a  fairly  world- 
wide distribution.  It  was  left  for  the  next,  a  very 
serious  panic,  to  occur  in  yet  another  continent.  Early 
in  October^  1907,  a  panic  of  the  first  magnitude  broke 
out  in  Chili.  Beginning  some  months  before  the 
actual  crisis,  Chilian  exchange  on  London  had  fallen 
from  13I  pence  per  peso,  which  itself  was  far  out  of 
line  with  parity,  to  12  in  the  early  days  of  October  and 

»  Annual  report  for  1907,  Bank  of  Japan,  Tokio,  Feb.  15, 
1908. 

'  Hamburg  correspondence,  London  Economist,  Oct.  36, 
1907,  p.  1814. 

» Ihid.,  Nov.  30,  p.  3083. 


19071  Disbelief  in  Coming  Panic  363 

to  Z\  before  the  year  was  over.  ^  This  amounted  prac- 
tically to  depreciation  of  the  currency.  It  was  followed 
by  a  run  on  the  Chilian  banks  and  by  complete  dis- 
order in  business  circles  at  Santiago  and  Valparaiso, 
by  the  failure  of  the  large  Mobiliario  Bank  of  the  first 
of  these  cities,  and  by  a  banking  crisis  which  was  re- 
ported to  have  inspired  an  effort  at  relief  by  the  Chilian 
Government,  through  issue  of  short-dated  Treasury 
bonds  to  the  threatened  institutions.  Holland  and 
Denmark  similarly,  before  the  year  was  over,  passed 
through  a  formidable  convulsion  of  their  credit  mar-, 
kets,  with  numerous  banking  failures.  But  the  turq 
of  New  York  came  next. 

It  had  for  many  years  been  a  cardinal  doctrine,  in 
American  banking  circles,  that  a  panic  like  those  oi 
1893  and  1873  would  never  again  be  witnessed  in  thif 
country.  The  ground  for  this  belief  lay  in  the  phe- 
nomenal increase  of  our  economic  strength,  the  "co- 
ordination of  American  industry  "  since  1899,  the  es^ 
tablishment  of  the  gold  standard  of  currency,  and,  more 
particularly,  the  great  and  concentrated  resources  of  our 
banks.  2  We  have  possibly  discovered,  in  our  narra^ 
tive,  the  weak  point  of  this  argument;  the  strain  im^ 
posed  on  credit  had  as  greatly  exceeded  precedent  as 
did  the  strength  of  the  organism  subjected  to  it. 
But  there  were  other  reasons  why  the  idea  of  an  Ameri- 
can  commercial  crisis  in  1907  had  not  been  entertained, 

»  London  Economist,  Dec.  14,  1907,  p.  2171. 

»  "Commercial  Panics,  Past  and  Futvire, "  Atlantic  Monthly, 
October,  1906;  "A  Year  after  the  Panic  of  1907,"  Quarterly 
Journal  of  Economics,  February,  1909. 


364  American  Finance  [1907 

One  was  the  fact  that  predictions  of  the  sort,  in  1901 
and  1903,  had  failed  so  signally  of  fulfilment.  An- 
other was  prevalent  belief  in  the  "twenty-year  cycle" 
between  two  great  panics.^  Such  an  interval  had 
separated  1837  from  1857,  and  1873  from  1893,  and  the 
theory  would  have  fixed  the  next  great  panic,  not  for 
1907,  but  for  1913.  This  last  consideration  will 
probably  enough  become  a  topic  of  future  economic 
discussion.  Perhaps  it  will  be  concluded  that  the 
extravagance  of  the  demands  on  credit  after  1904, 
in  America  especially,  was  so  much  greater  than  in 
any  former  epoch  as  to  shorten  the  period  of  immunity. 
Perhaps  more  weight  than  heretofore  will  be  allowed 
to  the  fact  that  the  cycles  of  prosperity  which  ended 
respectively  in  1857  and  1893,  and  which  had  lived  out 
the  full  two  decades,  were  marked  by  prolonged  inter- 
national peace,  whereas  the  sixteen  years  between 
1857  and  1873  contained  the  American  Civil  War 
and  the  Franco-Prussian  conflict,  and  the  fourteen- 
year  interval  prior  to  1907  had  covered,  as  we  have 
seen,  three  other  wars  involving  prodigious  waste  of 
capital.  2 

Even  if  not  prepared,  however,  for  another  panic  of 
the  sort,  the  community  found  itself,  as  1907  drew  on, 
in  a  thickening  amosphere  of  apprehension.  In  June, 
an  $8,000,000  iron-manufacturing  house  went  down 
at  New  York  City;  in  midsummer,  two  New  York  City 

>  Burton,  Financial  Crises,  p.  24. 

2  "The  Cycle  of  Prosperity,"  Century  Magazine,  February 
igo8. 


t907i  ^*  Chain  Banking**  365 

loans,  offered  for  public  subscription,  failed  to  find 
a  market^;  in  the  early  autumn,  the  $52,000,000  New 
York  street  railway  combination  went  into  receivers' 
hands,  followed,  a  few  weeks  later,  by  the  $34,000,000 
Westinghouse  Electric  Company;  early  in  October ^ 
the  storm  broke  with  the  utmost  suddenness  and  vio- 
lence on  the  New  York  banks. 

One  of  the  characteristic  incidents  of  the  era  of 
speculation,  watched  by  conservative  financiers  with 
much  uneasiness,  had  been  what  was  called  "chain 
banking."  In  New  York  City,  half  a  dozen  banking 
institutions  of  the  second  rank  had  been  bought  up  by 
a  speculating  financier.  He  had  used  his  stock  in  one 
institution  as  collateral  on  which  to  borrow  money; 
the  proceeds  he  had  used  to  buy  stock  in  another  bank, 
repeating  the  process  with  each  new  acquisition.  Con- 
trolling his  "chain  of  banks"  on  such  a  tenure,  he  had 
utilized  the  whole  of  them  to  promote  his  personal 
speculations.  2  This  had  been  going  on  during  half 
a  dozen  years.  On  Wednesday,  October  16,  1907, 
one  of  these  institutions,  the  Mercantile  National  of 
New  York  City,  a  bank  with  $11,500,000  deposits, 
applied  to  the  other  banks  of  the  Clearing  House  for 
help. 

While  the  Clearing  House  committee  was  investi- 
gating the  Mercantile's  condition,  financial  uneasiness 

>  New  York  Financial  Chronicle,  June  29,  1907,  p.  1514; 
Aug.  17,  p.  371. 

»  Testimony  in  trial  of  Charles  W.  Morse,  U.  S.  Circuit 
Court,  New  York,  Oct.  31  and  33,  1908. 


366  American  Finance  [1907 

began  to  spread  to  the  community  at  large.  On 
Thursday,  the  committee  announced  that  the  crippled 
bank  would  be  helped  through,  and  an  interval  of 
relief  occurred.  Other  events,  however,  which  oc- 
curred at  the  same  time,  and  the  demand  of  the  Clearing 
House  banks  that,  as  a  condition  for  their  assistance, 
all  the  directors  of  the  Mercantile  should  resign,  dis- 
closed the  fact  that  the  bank's  predicament  had 
occurred  through  misuse  of  its  capital,  by  its  president, 
in  copper  share  speculation.  During  the  two  or  three 
ensuing  days,  bankers  were  very  generally  employed 
in  overhauling  accounts  of  other  institutions  with  which 
they  had  engagements.  Late  Monday  afternoon, 
October  21st,  the  National  Bank  of  Commerce  sud- 
denly announced  that  it  would  no  longer  accept  for 
collection  checks  of  the  Knickerbocker  Trust  Company. 
With  the  next  day's  opening,  a  run  began  on  that 
institution,  a  concern  with  17,000  depositors  and  total 
deposit  liabilities  of  $35,000,000.  By  noon  the  Knick- 
erbocker had  closed  its  doors;  next  day,  nearly  every 
trust  company  in  the  city  was  besieged  by  a  line  of 
panic-stricken  depositors. 

Nothing  like  this  had  been  seen  in  New  York  City 
since  1873;  even  in  1884  and  1893,  the  New  York  bank 
runs  were  confined  to  one  or  two  crippled  institutions. 
The  extraordinary  phenomena  which  followed  the 
Knickerbocker  failure  cannot  be  understood  except 
by  a  glance  at  the  nature  and  history  of  the  institu- 
tions on  which  the  panic  of  1907  now  converged.  In 
New  York  State,   both  the  original  acts  chartering 


1907]  The  Trust  Companies  367 

companies  of  this  nature,  and  the  general  trust  company 
law  of  1887  and  1893,  had  in  view  merely  banking 
organizations  which  should  perform  the  duties  of  ex- 
ecutor, administrator,  or  trustee.  In  these  statutes 
there  was  therefore  no  provision  looking  either  to  per- 
formance of  a  general  banking  business  or  to  accept- 
ance of  demand  deposits  from  the  general  public* 
No  cash  reserve  was  required,  as  in  the  case  of  banks, 
to  be  maintained  against  deposits.  Not  only  was  no 
cash  reserve  required,  but  the  companies  were  em- 
powered to  invest  their  deposit  funds  in  real  estate, 
to  buy  and  sell  stocks,  to  lend  money  on  realty — powers 
which,  as  a  result  of  long  experience,  were  either  de- 
nied outright  to  deposit  banks  by  law,  or  were  most 
scrupulously  restricted.  ^ 

It  was  not  until  the  great  financial  revival  after  1896 
that  the  companies  began  to  invade,  on  an  extensive 
scale,  the  field  of  deposit  banking.  They  found  their 
authority  in  a  section  of  the  Trust  Company  Act,  prob- 
ably not  intended  for  this  application,  but  which  pro- 
vided for  their  acceptance  of  "any  and  all  such  trusts 
and  powers,  of  whatever  nature  and  description,  as 
may  be  conferred  upon  or  intrusted  or  committed  to 
it  by  any  person  or  persons. "  The  language,  broadly 
interpreted,  covered  acceptance  and  solicitation  of  de- 
mand deposits,  and  on  the  basis  of  such  interpreta- 

»  Banking  Law  of  New  York  State,  Article  IV.,  Section 
^56.  Kilbum's  "New  York's  State  Banking  Institutions." 
"The  Trust  Companies,"  Political  Science  Quarterly,  June, 
1901. 

*  Political  Science  Quarterly,  June,  1901,  p.  257. 


368  American  Finance  [1907 

tion  the  greater  number  of  the  trust  companies  engaged, 
without  the  restraints  imposed  by  law  and  experience 
on  deposit  banks,  in  general  deposit  banking. 

What  opportunities  and  what  temptations  opened  be- 
fore these  institutions,  in  a  period  such  as  I  have  re- 
viewed in  the  last  three  chapters,  is  easy  to  imagine.  We 
have  already  seen  how  certain  life  insurance  managers 
utilized  the  trust  companies  for  illegitimate  financiering; 
some  of  them  were  involved  in  the  worst  phases  of  the 
promoters'  schemes  of  1901  and  1902;  the  old  and 
conservative  institutions  of  the  class  dropped  into  the 
background  as  their  younger  competitors  exploited  the 
field  of  general  deposits.  Between  1899  and  the  end 
of  1906,  their  number  increased  in  New  York  State 
from  sixty-two  to  eighty-six.  Offering  interest  on 
demand  deposits  which  banks,  with  their  15  or  25  per 
cent,  reserve  requirement,  could  not  afford  to  pay, 
they  ran  up  the  aggregate  of  such  demand  deposits 
from  $198,000,000  in  1898  to  $834,000,000  in  1906;  in 
addition  to  which  sum,  they  held  in  the  last-named 
year  $115,000,000  more,  due  to  other  banking  insti- 
tutions. In  1 901,  the  actual  cash  holdings  of  the  New 
York  companies  footed  up  only  i\  per  cent,  of  all  de- 
posits, or  2f  per  cent,  of  all  except  such  as  were  classi- 
fied as  "trust  deposits,"  and  the  ratio  was  not  greatly 
changed  up  to  1906.  * 

Now  it  is  true  that  the  companies  supplemented 
this  meagre  cash  reserve  by  keeping  large  credits  with 

»  Annual  Reports,  New  York  Banking  Superintendent  on 
savings  Banks,  Trust  Companies,  etc. 


1907]    Defective  Protection  for  Depositors     369 

the  banks.  But  these  so-called  "reserves  on  deposit" 
were  not  cash  at  all;  in  the  banks'  hands,  they  became 
liabilities;  protected,  like  other  city  bank  deposits, 
only  by  25  per  cent,  reserve  in  cash.  It  was  an  inverted 
pyramid,  and  an  uneasy  feeling  spread  among  con- 
servative bankers,  long  before  1907,  as  to  what  might 
result  from  so  ill-guarded  a  credit  system.  For  the 
purpose  of  redeeming  checks  deposited  or  drawn  in 
connection  with  this  new  branch  of  their  business, 
trust  companies  were  accustomed  to  use  indirectly  the 
regular  bank  clearing-house;  that  is  to  say,  although 
they  were  not  members,  they  "cleared"  or  exchanged 
their  checks  through  banks  which  were.  As  early  as 
1902,  the  Clear ing-House  authorities  expressed  the 
purpose  of  requiring  trust  companies  which  enjoyed 
such  facilities  to  keep  larger  cash  reserves;  on  February 
II,  1903,  a  rule  was  formally  adopted  by  the  clearing- 
house stipulating  minimum  cash  reserves  of  10  per  cent.  * 
A  controversy  of  much  warmth  broke  out.  During 
the  discussion,  such  contemptuous  terms  were  used,  in 
public  statements,  as  "the  foolish  fetich  of  a  cash  re- 
serve." Banks  were  accused  of  trying  to  cripple 
trade  competitors  who  had  got  ahead  of  them;  in  the 
end,  nearly  all  the  trust  companies  broke  off  their 
clearing-house  connections,  merely  maintaining  their 
balances  in  bank.  Let  it  be  observed  that  this  action 
not  only  left  the  companies  with  the  same  inadequate 

>  New  York  Financial  Chronicle,  Feb.   14,   1903,  p.  358. 
Speech  of  J.    Edward  Simmons  to  Clearing-house  Associa- 
tion, Feb.  II,  1903. 
34 


370  American  Finance  i;i907 

cash  reserve,  but  made  it  necessary  to  redeem  across 
the  counter  all  such  checks  as  might  be  drawn  upon 
them,  and  to  send  messengers  to  collect,  across  the 
counter  of  other  institutions,  all  such  checks  as  should 
be  received  upon  deposit.  This  was  reversion  to 
methods  and  practices  of  a  primitive  banking  era- 
methods  to  escape  which  clearing-houses  were  in- 
dented, a  hundred  years  ago.  It  was  adopted  by  a 
body  of  institutions  with  a  larger  number  of  depositors 
and  a  larger  aggregate  sum  in  deposits  payable  on 
demand  than  all  the  New  York  banks  possessed  in 
1873,  and  with  a  very  considerable  part  of  their  client- 
age drawn  from  the  ranks  of  savings  bank  depositors 
by  payment  of  interest  on  deposits,  and  subject,  as 
savings  bank  depositors  notoriously  are,  to  sudden 
fright.  We  are  now  to  see  how  all  these  conditions 
operated  in  a  great  financial  storm. 

The  Knickerbocker  closed  its  doors  on  October 
22d;  that  night,  certain  other  trust  companies  sought 
aid  from  the  banks  to  safeguard  them  against  a  run. 
Knowledge  of  this  conference,  reported  next  morning 
in  the  daily  papers,  brought  the  run  at  once;  and  long 
before  business  opened  on  October  23d,  lines  of  de- 
positors had  formed  outside  the  doors  of  other  com- 
panies. The  Knickerbocker  had  catered  especially 
to  the  so-called  "up-town  clientage"  of  the  shopping 
and  residence  district;  its  main  competitor  in  this  line 
of  business  had  been  the  Lincoln  Trust  Company,  with 
something  like  8000  depositors  and  demand  depos- 
its of  $16,000,000.     On  Broadway  and  Wall  Street, 


1907]        Run  on  the  Trust  Companies         371 

the  Trust  Company  of  America  had  accumulated 
$42,000,000  demand  deposits  from  12,000  separate  de- 
positors.^ Against  these  demand  liabilities  the  Lin- 
coln had  been  keeping  $1,100,000  in  its  cash  reserve 
and  the  America  $3,200,000.  ^  On  these  two  institu- 
tions, there  now  converged  such  a  run  as  was  probably 
never  witnessed  in  the  history  of  banking.  ^  It  must 
be  remembered  that  banks  and  other  trust  companies, 
to  whom  the  beleaguered  institutions  were  indebted, 
or  with  whom  checks  on  the  Lincoln  or  America  were 
deposited,  had  no  other  way  of  collecting  than  by 
stationing  messengers  in  the  line  of  frightened  de- 
positors; this  was  the  punishment  for  the  events  of 
1903.  Recognizing  the  gravity  of  the  crisis,  the  Secre- 
tary of  the  Treasury,  Mr.  Cortelyou,  came  on  at  once 
from  Washington,  and  arranged  to  deposit  $35,000,000 
of  the  Government  surplus  with  the  national  banks, 
by  whom  it  was  hurriedly  advanced  to  the  trust  com- 
panies against  their  liquid  assets.  ^  This  great  sum 
was  almost  instantly  ingulfed  in  the  withdrawals  by 
depositors;  the  Trust  Company  of  America  alone  had 
to  pay  out  $34,000,000  to  depositors.*  The  runs  con- 
tinued  fourteen  successive   days,   depositors   holding 

»  Statements  of  Aug.  32,  1907;  New  York  Banking  Super- 
intendent's Report  on  Savings  Banks,  Trust  Companies,  etc., 
p.  672. 

» Ihid.,  p.   667. 

'  Secretary  Cortelyou,  report  in  response  to  U.  S.  Senate 
resolution  of  inquiry,  Jan.  29,  1908. 

*  Statement  of  Oakleigh  Thorne,  president  Trust  Company 
of  America,  Nov.  6,  1907. 


372  American  Finance  [Id07 

their  places  in  line  by  night  to  get  a  chance  to  withdraw 
their  funds  next  day.  Ten  million  dollars  cash  pro- 
vided by  other  institutions  went  with  the  rest;  the  run 
was  not  stopped  until,  on  November  6th,  the  older  trust 
companies  had  organized  in  committee  to  assume 
responsibility  for  the  two  hard-pressed  institutions. 
In  the  meantime,  during  the  panic  week  itself,  six 
banks  in  Greater  New  York  and  three  trust  companies 
other  than  the  Knickerbocker — ^mostly  small  institu- 
tions, but  with  deposits  aggregating  $57,000,000 — closed 
their  doors,  and  a  general  run  upon  the  savings  banks 
caused  application  of  the  "sixty-day  notice  rule"  for 
withdrawal  of  deposits.  ^ 

On  Thursday,  October  24th,  panic  swept  over  the 
Stock  Exchange.  The  bank  position  being  then  in  its 
most  critical  phase,  restriction  of  credit  occurred  on 
a  scale  which,  if  continued,  would  probably  have  re- 
duced the  Stock  Exchange  community  to  general  in- 
solvency. 2  This  day  of  suspense  —  an  unvarying 
incident  of  formidable  credit  panics — brought  the  rate 
for  Stock  Exchange  demand  loans  up  to  125  per  cent.; 
before  the  day  was  over,  however,  personal  intervention 
of  the  president  of  the  Stock  Exchange  and  of  Mr. 
J.  P.  Morgan  with  the  banks  caused  release  of  $25,000,- 
000  which,  in  accordance  with  sound  rule,  was  loaned 
out  at  high  rates,  but  in  such  manner  as  to  meet  press- 
ing exigencies.    This  averted  the  formidable  aspect 

«  Annual  Report  on  Banks,  New  York  State  Banking  De- 
partment, Dec.  31,  1907. 

'  New  York  Evening  Post,  Oct.  26,  1907,  Financial  Section, 
p.  I. 


1907]  The  Banking  Crisis  3  73 

of  the  crisis  which,  in  1873,  made  necessary  the  closing 
of  the  Stock  Exchange  and  which  in  1907  forced  the 
government  of  several  Western  States  to  decree  a  series 
of  special  holidays.  The  crisis  of  the  banks,  however, 
had  only  begun,  and  it  followed  the  lines  made  familiar 
by  all  former  crises.  The  New  York  City  national 
banks  alone  held  in  1907  no  less  than  $470,000,000  de- 
posits due  to  other  institutions  ^ ;  considerably  more  than 
double  what  had  been  thus  held  in  1893.2  Banks  of 
interior  cities,  most  of  which  had  three  fifths  of  their 
15  per  cent,  reserve  thus  deposited  in  other  hands, 
took  natural  alarm  at  the  panic  news,  remembered 
1893,  and  called  for  return  of  part  of  these  deposits. 
What  followed,  merely  repeated  history — a  history, 
however,  which  the  country  had  been  assured  could 
never  be  repeated.  The  New  York  banks,  on  Satur- 
day, October  26th,  determined  to  take  out  clearing- 
house loan  certificates.  The  intent  of  this  expedient, 
never  adopted  since  the  panic  of  1893,  was  to  help  out 
hard-pressed  banks  through  loan  of  the  cash  rer 
sources  of  their  neighbors;  but  its  result,  in  1907 
as  in  1893,  was  to  bring  about  general  suspension 
of  cash  payments  in  the  clearing-house.  Before  the 
panic  of  1907  was  over,  the  New  York  banks  had 
$88,420,000  of  such  loan  certificates  in  use,  as  against 
a  maximum  of  $38,280,000  in  the  panic  of  1893,  and 
the  loan  certificates  remained  in  use  during  twenty- 

»  Reports  to  U.  S.  Comptroller  of  the  Currency,  Aug.  as, 
1907. 
>  See  pp.  189  and  190. 


374  American  Finance  tigo? 

two  weeks,  as  against  only  nineteen  weeks'  duration 
in  the  earlier  panic.  ^  Two  days  after  New  York  had 
set  the  example,  practically  every  clearing-house  in  the 
country  took  similar  action — a  wholly  unprecedented 
event,  which  resulted  in  issue,  throughout  the  whole 
United  States,  of  $238,000,000  of  such  certificates,  as 
against  $69,000,000  during  1893.2  Notwithstanding 
this  recourse,  reserves  of  the  New  York  banks,  which 
had  stood  at  a  surplus  of  $11,182,000  in  the  week 
before  the  panic,  fell  to  a  deficit  of  $54,103,000  on 
November  3d,  very  much  the  largest  shortage  of  the 
kind  in  our  banking  history,  the  maximum  deficit  of 
1893  having  been  $16,545,000. 

This  formidable  shrinkage  was  occasioned  by  an 
actual  loss  of  $51,000,000  cash  in  the  five  intervening 
weeks,  and  the  position  thus  created  brought  suddenly 
into  view  two  other  phenomena  of  1893.3  Hoarding  of 
cash  by  individuals  set  in;  it  was  estimated  in  high 
quarters  that,  in  the  country  as  a  whole,  no  less  a  sum 
than  $296,000,000  actually  disappeared  from  sight.* 
This  hoarding  partly  caused,  and  was  partly  caused 
by,  the  policy  of  banks  in  limiting  the  amount  of  cash 
which  they  would  pay  out  to  depositors,  and  one  im- 
mediate result  of  such  restriction  being  the  issue  of 
emergency  currency  by  the  banks  of  cities  like  Pitts- 

>  Reports  of  Clearing-house  Loan  Committees,  Apr.  7,  1908, 
and  Oct.  31,  1893. 

» A.  P.  Andrew,  "Substitutes  for  Cash  in  the  Panic  of  1907,  " 
Quarterly  Journal  of  Economics,  August,  1908. 

*  See  pp.  194,  195,  196. 

*  Secretary  Cortelyou,  report  to  U.  S.  Senate,  Jan.  29,  1908. 


1907]      Collapse  of  Credit  on  all  Markets      375 

burgh  and  Chicago,  where  manufacturers'  pay-rolls 
created  urgent  need  for  great  sums  of  currency.  *  The 
amount  of  such  makeshift  money  has  been  estimated 
at  upwards  of  $96,000,000.2  The  next  result  of  the 
bank  restriction  was  a  premium  on  currency,  paid  in 
checks  on  such  institutions,  which  rose  to  4  per  cent, 
and  which  continued  for  two  months,  as  against  only 
one  month's  duration  in  the  panic  of  1893.^  As  in 
1893,  so  in  1907,  this  premium  caused  a  stampede  to 
draw  on  Europe's  gold  supply.  Gold  was  engaged  at 
London,  in  November,  at  the  abnormal  exchange 
rate  of  $4.91  for  the  pound  sterling,*  and  $90,000,000 
gold  came  from  Europe  in  the  next  two  months.  As 
we  have  seen,  Europe  was  in  no  position  to  regard  com- 
placently such  a  raid  on  its  gold  reserve.  London 
alone  lost  $73,400,000  gold  to  New  York  in  November 
and  Decembers;  the  Bank  of  England's  gold  reserve 
fell  $31,000,000  in  the  two  weeks  after  the  New  York 
panic,  and  on  November  7th  the  bank  rate,  for  the 
first  time  since  1873,  was  put  up  to  7  per  cent.  "^  In 
the  dismay  and  bewilderment  of  the  hour,  intimations 
were  made,  in  conservative  quarters,  of  an  8  per  cent, 
rate,  or  even  9,  if  the  gold  outflow  to  New  York  con- 

»  Pittsburgh  correspondence  New  York  Journal  of  Com- 
merce, Nov.  14,  1907;  Pittsburgh  correspondence  New  York 
Evening  Post,  Nov.  i6,  Financial  Section,  p.  3. 

»  A.  P.  Andrew. 

»  See  p.  195. 

*  New  York  Financial  Chronicle,  Nov.  9,  1907,  p.  1175. 

*  British  Board  of  Trade  reports. 

*  London  Economist,  Nov.  9,  1907,  p.  1901. 


376  American  Finance  [1907 

tinued,  and  higlr  banking  authorities  in  London  gave 
out  word  that  the  time  had  come  for  some  arbitrary 
intervention  by  the  United  States  Government  to 
guarantee  the  banks.  ^  That  recourse  was  not  neces- 
sary. As  usually  happens  on  occasions  of  the  sort, 
markets  were  passing  out  of  the  stage  of  actual  crisis 
at  the  moment  when  despair  seemed  to  have  gained 
full  sway  in  the  financial  community.  The  excited 
clamor  for  help  through  issue  of  Government  fiat  money 
was  echoed,  on  this  occasion,  even  in  the  recommenda- 
tions from  Lombard  Street,  and  was  followed  by  a 
futile  expedient  of  the  Treasury,  whereby  $50,000,000 
Government  bonds  and  $100,000,000  one-year  Govern- 
ment notes  were  offered  to  the  banks  with  a  view  to 
providing  a  basis  of  new  circulation.^  Only  $24,998,040 
of  the  bonds  and  $15,436,500  of  the  notes  were  taken.  3 
It  soon  appeared  that  the  recourse  was  superfluous, 
and  that  the  operation  complicated  rather  than  relieved 
the  financial  strain,  and  a  few  weeks  after  the  announce- 
ment of  the  loans,  they  were  suddenly  withdrawn  from 
the  market  by  the  Government.  With  the  arrival  of 
the  first  few  large  consignments  of  gold  from  Europe, 
the  acute  stage  of  the  panic  ended. 

There  were  left  the  larger  after-effects,  of  which  the 
panic  itself  was  only  a  premonitory  symptom,  and 
which  came  only  gradually  into  sight,  along  with  asser- 
tions that  they  would  not  come  at  all,  on  this  occasion 

'  London  JSconomtrf,  Nov.  9,  1907,  p.  1902. 

'  Secretary  Cortelyou,  response  to  Senate  inquiry. 


t907]        Industrial  Sequel  to  the  Panic        377 

as  on  others  of  the  kind.  The  panic  of  1907  was  unlike 
the  panic  of  1893,  which  followed  a  period  of  uncer- 
tainty and  misgiving,  leading  to  acquiescence,  on  the 
part  of  the  community  at  large,  in  the  certainty  of 
prolonged  reaction  and  depression.  It  resembled  far 
more  intimately  the  panic  of  1873,  which  came,  like 
the  traditional  "bolt  from  the  blue,"  on  a  situation 
presenting  so  brilliant  an  aspect  of  assured  prosperity 
that  the  people — most  of  all  the  great  capitalists  whose 
schemes  had  come  to  earth — refused  for  many  months 
to  admit  that  one  chapter  in  finance  and  industry  had 
ended  and  that  another  and  different  one  was  opening. 
The  visible  sequel  to  the  panic  of  1907  was  necessarily 
recognized.  That  commercial  failures  in  the  United 
States  should  not  only  have  increased,  in  the  panic 
months  of  November  and  December,  30  per  cent,  in 
number  as  compared  with  1906  and  125  per  cent,  in 
liabilities,  but  that  the  first  nine  months  of  1908  should 
have  shown  increase  of  55  per  cent,  over  1907  in  number 
and  120  per  cent,  in  liabilities,  was  a  matter  of  record.  * 
So  was  the  shrinkage  in  the  iron  trade,  in  December, 
1907,  to  36  per  cent,  of  normal,  ^  and  the  50  per  cent, 
reduction  in  iron  production  during  the  first  half  of 
19083;  the  decrease,  for  the  full  year  1908,  of  $290,- 
000,000,  or  I  if  per  cent.,  in  trafl&c  receipts  of  American 

•  Bradstreet's  figures. 

»  Statement  of  President  Corey  of  the  U.  S.  Steel  Corpora- 
tion, Feb.  7,  1908. 

»  American  Iron  and  Steel  Association,  semi-annual  re- 
port. 


378  American  Finance  [1907 

railways*;  the  shrinkage  of  nearly  17  per  cent,  in  checks 
drawn  on  American  banks  2;  the  reduction  in  March, 
1908,  of  25  per  cent,  in  output,  10  per  cent,  in  wages, 
and  25  to  50  per  cent,  in  prices  in  the  textile  trade,  and 
the  great  increase  in  number  of  unemployed. 

But  a  full  year  had  elapsed  before  the  financial 
markets,  and  the  trades  dominated  by  great  combina- 
tions of  capital,  were  willing  to  recognize  the  changed 
conditions.  Recovery  from  the  acute  stage  of  de- 
pression in  general  industry,  as  on  the  Stock  Exchange, 
was  misinterpreted  as  meaning  immediate  restoration 
of  the  old  order  of  things — a  tendency  which  found  its 
complete  expression  in  that  extraordinary  novelty  of 
the  after-panic  year,  known  at  the  "Sunshine  move- 
ment" and  embodied  in  the  "Prosperity  League,"  the 
basis  of  whose  organized  action  was  to  persuade  the 
community  that,  if  they  believed  themselves  to  be 
prosperous,  they  would  be  prosperous,  and  whose 
methods  were  illustrated  by  the  fixing,  by  resolution, 
of  an  arbitrary  date  as  "  Re-employment  Day. "  Dur- 
ing this  same  year  1908,  an  equally  remarkable  position 
was  assumed  in  the  steel  trade,  where  the  billion- 
dollar  United  States  Steel  Corporation  was  dominant. 
The  head  of  the  company,  declaring  that  "the  mere 
fact  that  the  demand  is  greater  than  the  supply  does  not 
justify  an  increase  in  price,  nor  does  the  fact  that  the 
demand  is  less  than  the  supply  furnish  an  argument 
for  lowering  the  price,"  announced  that  the  price  of 

>  New  York  Financial  Chronicle,  Feb.  13,  1909,  p.  411. 

>  Ihid.,  Nov.  7,  1908,  p.  1199. 


1907]  The  Story  of  igo8  379 

steel,  a  basic  material  of  industry,  would  not  be  re- 
duced in  response  to  the  impaired  demand,  and  that 
although  consumption  of  steel  was  barely  fifty  per 
cent,  of  what  it  was  in  1907,  prices  of  1907  would  be 
maintained.  ^  Throughout  1908  they  were  maintained, 
except  for  a  trifling  and  ineffectual  reduction.  On 
the  Stock  Exchange,  repeated  outbursts  of  speculation 
for  the  rise  occurred,  in  each  of  which  it  was  confidently 
aflSrmed  that  the  after-effects  of  panic  were  over,  and 
that  the  "  boom  of  1906"  was  about  to  be  resumed.  In 
November,  the  people  gave  Mr.  Taft  a  plurality  over 
Bryan  scarcely  one-half  the  Roosevelt  plurality  of 
1904,  but  except  for  that,  the  largest  plurality  of  any 
presidential  vote,  and  the  first  plurality  ever  polled 
for  the  Administration  party  in  the  election  following 
financial  panic.  The  speculative  public  rushed  again 
impetuously  into  the  Stock  Exchange;  the  speculating 
capitalists  resumed  their  manipulation  of  the  market; 
many  stocks  rose  to  a  higher  price  than  in  either  1907 
or  1906. 

The  end  of  this  singular  demonstration  came  with 
the  opening  of  1909,  when  facts  were  suddenly  recog- 
nized, when  prices  for  steel  and  other  commodities 
came  down,  and  when  the  Stock  Exchange  demon- 
strations ended.  With  the  closing  of  the  year  1908, 
this  history  may  properly  close;  for  it  marked  the  end- 
ing of  a  chapter.  What  shape  the  next  distinct  epi- 
sode of  American  finance  will  take,  is  a  question  to  be 
determined  by  other  influences.    In  the  future,  as  in 

«  Statement  of  E.  H.  Gary,  Apr.  9,  1908 


380  American  Finance  tl907 

the  past,  the  trend  of  the  country's  financial  history 
will  be  fixed  by  the  interplay  of  its  natural  resources, 
its  capacity  for  production,  the  industry,  inventiveness, 
and  versatility  of  its  people,  and  their  disposition 
towards  rash  exploitation  of  such  resources  and 
towards  venturesome  experiments  with  capital. 


INDEX 


Agricultural  Department  of 
United  States  government, 
declares  1884  wheat  prices 
unremunerative,  102;  un- 
derestimates wheat  crop 
in  1 89 1,  165;  early  pre- 
dictions of  good  com  crop 
in  1894,  221 

Agriculture,  extension  in  the 
United  States  after  1865,  3 ; 
in  Europe,  4;  its  influence 
on  politics,  5;  depressed 
condition  of,  early  in  1879, 
53;  foreign  reverses  in,  53- 
55;  great  prosperity  in,  for 
the  United  States,  56,  59, 
60;  influence  on  resump- 
tion, Sherman's  opinion 
regarding,  67;  foreign  com- 
petition m,  after  1881,  86, 
114;  depression  in,  during 
1885,  117;  severe  depres- 
sion in,  during  1894,  221; 
recovery  in,  dviring  1896, 
253;  prosperity  of,  after 
1897,  261 ;  world-wide  pro- 
ductiveness in  1905  and 
1906,  314 

Aldrich,  N.  W.,  U.  S.  Senator, 
his  overestimate  of  re- 
venue under  McKinley 
Tariff  Act,  135 

Alexander,  James  W.,  pre- 
sident Equitable  Life  As- 
surance Company,  his  ac- 
tion starting  mvestigation. 


337;   his   letter   regarding 

Equitable's  bank  deposits, 

338 
Allen,  W.  v.,  U.  S.  Senator, 

attacks  bond-issue  of  1894, 

211 
Allison,  W.  B.,  U.S.  Senator, 

speech   on   $100,000,000 

fold  reserve,  167;  on  Anti- 
rust  Bill,  344 

Amalgamated  Copper  Com- 
pany, breakdown  of  eflEort 
to  control  1901  copper 
market,  307;  cuts  its  divi- 
dend, 308;  activities  dur- 
ing 1906,  316;  public  atti- 
tude regarding  its  control 
of  prices,  333 

America,  Trust  Company  of, 
its  depositors  and  reserves, 
371;  run  of  1907  on,  371; 
enormous  withdrawal  of 
cash  from,  371 

American  Railway  Union, 
strike  of,  in  1894,  220 

American  Steel  and  Wire 
Company,  extravagant 
capitalization  of,  287 

Anti-Trust  Law  of  1890,  in- 
voked by  Roosevelt  Admin- 
istration in  1902  against 
railway  mergers,  344;  its 
legislative  history,  344, 
345;  primarily  designed 
for  manvifacturing  com- 
binations,    344 ;    railways 


381 


382 


Index 


Anti-Trust  Law — Continued 
not  excluded  from  scope  of, 
345;  applied  to  railways  in 
1897  by  Supreme  Court, 
345,  346;  used  by  Roose- 
velt Administration  in  at- 
tack on  Northern  Securi- 
ties, 347;  held  to  apply  by 
U.  S.  Circuit  Court,  347 ;  by 
U.  S.  Supreme  Court,  348, 

349 

Appropriations  of  Congress, 
vicious  methods  employed 
in,  133.  5e^  a/50  Expendi- 
tures of  U.  S.  government 

Argentine  Republic,  increase 
in  wheat  exports  from,, 
after  1887,  122 ;  investment 
of  British  capital  in,  122; 
crop  failure  and  financial 
panic  in,  during  1889,  157; 
English  demand  for  its 
securities  slackens,  157; 
foreign  capital  withdraws 
from,  158 

Arthur,  Chester  A.,  President 
of  the  United  States,  urges 
reduction  of  import  tariflE, 
88;  vetoes  River  and  Har- 
bor Bill,  90;  Republican 
approval  of  his  veto,  9 1 ; 
his  opinion  regarding  me- 
thods of  appropriation,  134 

Atchison,  Topeka,  and  Santa 
F6  Railway,  escapesGould's 
domination  in  1880,  64; 
its  deceptive  reports  of 
earnings,  219;  reorganized 
out  of  bankruptcy  in  1895, 
277;  shares  of,  bought  in 
1906  by  Union  Pacific,  356 

Austria,  railway  extension  in, 
prior  to  1878,  4;  crop 
failure  of  1879  in,  55;  ac- 
cumulates gold  for  resump- 
tion purposes,  i6o;  crop 
failure  of  1897  in,  270 

Baltimore,    banks    of,    issue 


loan  certificates  in  1893, 
192 

Baltimore  and  Ohio  Railroad, 
stock  of,  bought  in  1906  by 
Union  Pacific,  356 

Bank  of  Egypt,  report  on 
Egyptian  speculation  of 
1906,  325;  report  on  Egyp- 
tian panic  of  1907,  361 

Bank  of  England,  high  in- 
terest rate  in  Overend- 
Gurney  panic,  15;  opposes 

fold  withdrawals  for  U.  S. 
'reasury,  26;  its  relations 
with  British  Exchequer, 
^3 ,  1 24 ;  its  practice  regard- 
ing note  redemption,  48, 
49 ;  security  for  its  note  cir- 
culation, 109;  action  of,  in 
panic  of  1890,  158;  in- 
creases its  gold  reserve  in 
1891,  160;  gold  withdrawn 
from,  in  1893,  ^o^"  New 
York,  196;  raises  rate  to 
6  per  cent,  in  Transvaal 
War,  281;  warns  London 
bankers  against  lending  to 
Wall  Street  in  1901,  306; 
weak  position  of,  in  1906, 
358;  warns  other  European 
banks  against  New  York, 
358;  heavy  withdrawals  of 
gold  from,  for  New  York, 
during  1907  panic,  375; 
rate  goes  to  7  per  cent., 
375;  higher  rate  threat- 
ened, 376 

Bank  of  France,  lends  gold  in 
1890  to  Bank  of  England, 
158;  attracts  gold  in  1891, 
160,  161 

Bank  of  Germany,  rate  goes 
to  7  per  cent,  in  Transvaal 
War,  281 ;  puts  rate  from  5 
to  6  per  cent,  in  1905,  to 
check   speculative    mania, 

325 
Bank   of   Japan,    report   on 
Japanese    boom    of    1906, 


Index 


383 


Bank  of  Japan — Continued 
326;  on  Japanese  panic  of 
1907,  361 

Bank  of  Russia,  lends  gold  to 
Bank  of  England,  158;  at- 
tracts gold  in  1 89 1,  160 

Bank  checks,  tax  on,  repealed 
in  1883,  95;  sold  at  a  dis- 
count for  cash  in  1893 
panic,  194;  in  1907,  375 

Bank  deposits  by  U.  S. 
Treasury,  Secretary  Sher- 
man's methods  in,  32,  33; 
reasons  and  authority  for, 
33;  heavy  increase  in,  dur- 
ing 1888,  124;  difficulties 
in  the  way  of,  125 

Bank  deposits,  recall  of,  by 
interior  institutions,  18^; 
heavy  withdrawal  of,  in 
1893,  190,  191;  suspension 
of  cash  payment  on,  194, 

374 

Bank  notes,  national,  de- 
signed as  permanent  cur- 
rency by  authors  of  Legal 
Tender  Act,  8;  large  circu- 
lation of,  in  1884,  108; 
volume  of,  dependent  on 
government  bonds,  109; 
rapid  retirement  of,  be- 
tween 1883  and  1891,  log- 
in; contraction  of,  comes 
to  a  stop  in  1891,  159;  large 
issue  of,  during  1893  panic, 
202 

Banks  of  the  United  States 
{see  also  Banks  of  New 
York  City),  their  policy 
regarding  money  holdings, 
75;  heavy  retirement  of 
their  circulation,  109-112; 
government  deposits  with, 
in  1888,  124,  125;  cash 
withdrawals  from,  in  panic 
of  1893,  189;  their  re-de- 
posit of  reserves,  189,  190; 
run  of  interior  depositors 
on,    190;    recall    of    their 


Eastern  deposit8,  191;  nu- 
merous failures  among, 
in  interior,  192,  193;  de- 
mand for  gold  by,  to 
equip  new  institutions, 
272;  loans  for  Wall  Street 
speculation  of  1906,  356; 
special  holidays  declared 
for,  in  1907  panic,  373; 
panicky  recall  of  New 
York  deposits  by,  373; 
amount  of  cash  withdrawn 
from,  373;  partial  suspen- 
sion of  payments  by,  374; 
issue  of  emergency  cur- 
rency by,  374,  375;  esti- 
mated amount  of  such 
issues,  375;  premium  on 
currency  caused,  375;  re- 
luctance to  take  govern- 
ment note  issues  in  panic, 
^76;  after-panic  shrinkage 
in  checks  drawn  upon,  378 
Banks  of  New  York  City,  re- 
luctant to  subscribe  to  the 
resumption  bonds,  29; 
abolish  gold  deposits,  46; 
specie  and  legal-tender 
holdings  of,  in  1879,  48,  58; 
oppose  payment  of  bal- 
ances in  silver,  76-80;  pay 
gold  for  Treasury  silver, 
81-83;  failures  among,  in 
1884,  99,  100;  issue  loan 
certificates  in  panic  of 
1884,  100;  lend  five  mil- 
lions gold  to  the  Treasury, 
104;  issue  loan  certificates 
in  panic  of  1890,  158;  legal- 
tender  holdings  of,  in- 
crease rapidly,  168;  gold 
payments  of,  to  one  an- 
other, suspended,  169;  to 
the  Treasury,  169;  provide 
export  gold  prior  to  1892, 
171;  present  legal  tenders 
for  redemption,  172,  173; 
ship  le^al  tenders  to  in- 
tenor,  in  189a,  iSa;  lend 


384 


Index 


Banks  of  New  York  City — 
Continued 
gold  to  the  Treasury,  183- 
185;  heavy  increase  in  de- 
posits of,  by  interior  banks, 
189,  190;  recall  of  interior 
deposits  from,  in  1893, 191 ; 
heavy  decrease  in  cash  re- 
serves of,  191-193;  issue 
loan  certificates,  192;  draw 
gold  from  Europe,  194; 
suspension  of  cash  pay- 
ments among,  194;  sub- 
scribe to  loan  of  February, 
1894,  214;  draw  out  Treas- 
ury gold  for  subscription, 
215;  repeat  the  process  in 
November,  231;  lend  gold 
to  Treasury,  231;  co-oper- 
ate with  Belmont-Morgan 
syndicate,  241;  their  co- 
operation in  stock  specula- 
tion of  1905,  327;  deficit 
in  their  reserve,  328;  strain 
of  1906  speculation  on, 
357;  deficit  occurs  again, 
357;  speculative  uses  of, 
365 ;  controversy  with  trust 
companies  over  cash  re- 
serves, 369;  attitude  to- 
wards Stock  Exchange  in 
panic  of  1907,  371;  severe 
strain  on,  through  with- 
drawals of  cash  by  interior 
banks,  373;  decide  to  is- 
sue loan  certificates,  373; 
amount  issued,  compared 
with  previous  panics,  373; 
duration  of  issue,  374; 
heavy  loss  in  reserves,  3  74 ; 
panic  deficit  in,  374 

Banks  of  European  cities, 
bid  for  gold  in  Transvaal 
War,  281;  recall  loans  in 
1 90 1  from  Wall  Street, 
306;  heavy  loans  of  1905 
to  New  York  on  finance 
bills,  328;  warned  against 
Wall   Street  by   Bank  of 


England,  358;  American 
loans  recalled  in  1906,  358 

Baring  Brothers,  their  Argen- 
tine operations,  157;  their 
suspension  in  1890,  157 

Belmont,  August,  complains 
of  Secretary  Sherman's 
terms  with  bond-subscrib- 
ers, 30 

Belmont-Morgan  syndicate 
of  1895,  its  contract  with 
the  Treasury,  235,  236; 
its  arduous  undertaking, 
238;  its  apparent  success, 
242-244;  its  mistakes,  247; 
breakdown  of  its  under- 
taking, 248.  See  also  Pre- 
face. 

Blaine,  James  G.,  candidate 
for  presidential  nomination 
in  1880,  70;  nominated  in 
1884  and  defeated,  102 

Bland,  Richard  P.,  U.  S.  Con- 
gressman, introduces  free- 
silver  coinage  bill,  1877,37; 
threatens  paper  inflation, 
38;  proposes  free-coinage 
substitute  for  Silver-Pur- 
chase Bill,  148 

Bland  silver-coinage  bill,  de- 
bated in  Congress,  35-38; 
sectional  character  of  vote 
on,  40;  modified  by  Senate 
compromise,  41 ;  vetoed  by 
President  Hayes,4i ;  passed 
over  veto,  41 

Bonds  of  the  U.  S.  govern- 
ment, power  to  issue  for 
note  redemption,  granted 
in  1866,  10,  11;  Democratic 
party  declares  for  their 
payment  in  legal  tenders, 
16;  power  of  issue,  con- 
ferred by  Resumption  Act, 
21,  23,  24,  29;  sales  of,  by 
Secretary  Sherman,  30,  31 ; 
the  long  term  of  the  4  per 
cents.,  31;  bill  to  revoke 
Treatury'*  power  of  issue, 


Index 


385 


Bonds  of  U.  S.  government 
— Continued 
35  J  payment  in  silver  ad 
vised  by  Congress,  38 
•  Sherman  promises  pay 
ment  in  gold,  29,  39;  for 
eign  investors  in,  38,  39. 
sales  of,  by  London,  in 
1879,  52;  amount  out- 
standing in  1882,  88 
purchases  of,  with  the 
Treasury  surplus,  88;  their 
use  as  security  for  nation- 
al bank  circulation,  109; 
heavy  redemption  of,  by 
the  Treasury,  109,  iii, 
125,  126;  high  price  of, 
in  1888,  125;  redemption 
of,  abandoned  by  Harrison 
Administration,  137,  159; 
issue  of,  contemplated  by 
Harrison  Administration, 
183;  Carlisle's  reluctance 
to  issue  under  act  of  1875, 
207,  209 ;  issue  of  February, 
1894,  announced,  210;  issue 
of,  attacked  by  Congress, 
211;  sustained  by  the 
courts,  212;  slow  subscrip- 
tions to,  on  market,  212; 
taken  by  New  York  banks, 
214;  how  paid  for,  215; 
second  issue  of,  in  1894, 
23 1 ;  its  speedy  failure,  232; 
issue  of, to  Belmont-Morgan 
syndicate,  236  ;  foreign 
holdings  of,  re-sold  to  New 
York,  246;  large  issue  of,  in 
1896,  251;  authorized  in 
1900  for  redemption  pur- 
poses, 755 ;  issued  for  Span- 
ish War,  279 ;  abortive  issue 
of,  during  1907  panic,  376 

Boston,  its  banks  issue  loan 
certificates  in  1893,  192 

Boutwell,  George  S.,  U.  S. 
Congressman,  opposes  con- 
traction of  legal  tenders, 


35 


Boycott,  principle  of,  ap- 
proved Dy  Populist  Na- 
tional Convention,  180 

Bradley,  Joseph  P.,  Justice 
U.  S.  Supreme  Court,  be- 
lieves the  legal  tenders  to 
have  been  created  as  a 
temporary  currency,  8 

Brewer;  David  J.,  Associate 
Justice  U.  S.  Supreme 
Court,  his  question  put  to 
Northern  Securities  coun- 
sel, 336;  his  attitude  on 
Northern  Securities  de- 
cision, 348 

Bristow,  Benjamin  H.,  Secre- 
tary of  the  Treasury,  his 
scepticism  over  obtaining 
foreign  gold  for  resump- 
tion, 26 

Bryan,  W.  J.,  his  speech  at 
the  Democratic  convention 
of  1896,  262;  nominated 
for  President,  263;  de- 
feated by  McKinley,  266; 
renominated  in  1900,  291; 
shifts  issue  from  bimetal- 
lism to  imperialism,  291; 
defeated,  293 ;  defeated  for 
third  time  in  1908,  378 

Butler,  Benjamin  F.,  elected 
Governor  of  Massachusetts 
in  1882, 92 

Caimes,  J.  E.,  on  relation  of 
increasing  gold  production 
to  prices,  259 

California,  its  Congressmen 
vote  solidly  for  Bland 
Silver  Bill,  40;  carried  in 
1882  by  Democrats,  92 

Call,  Wilkinson,  U.  S.  Sena- 
tor, predicts  gold  redemp- 
tion under  Silver-Purchase 
Act,  150 

Cannon,  Joseph  G.,  U.  S.  Con- 
gressman, his  opinion  on 
Congressional  methods  of 
appropriation,  133 


386 


Index 


Carlisle,  John  G.,  Congress- 
man and  Secretary  of  the 
Treasury,  votes  in  1877  for 
repeal  of  Resumption  Act, 
41;  borrows  gold  in  1893 
from  New  York  banks, 
184;  suspends  issue  of  gold 
certificates,  185;  his  inter- 
view regarding  gold  re- 
demption, 186;  his  attitude 
in  the  emergency,  187; 
pays  out  the  gold  reserve 
for  regular  expenses,  204, 
206;  his  embarrassing  posi- 
tion, 207;  proposes  exche- 
quer bills,  208;  expresses 
doubt  over  Treasury's 
bond-issue  powers,  208; 
asks  Congress  for  plainer 
authority,  209;  decides  to 
issue  bonds,  210;  Con- 
gressional attacks  on,  211; 
his  policy  with  the  bankers, 
213;  its  unfortunate  re- 
sults, 214,  215;  urges 
thorough  reform  of  U.  S. 
currency,  252 

Carnegie,  Andrew,  threatens 
aggressive  combination  in 
1900  against  new  steel 
trusts,  297 ;  former  negotia- 
tions to  sell  out,  298;  his 
price  to  Morgan,  298; 
bought  out  by  Steel  Trust, 
298 

Cattell,  A.  G.,  U.  S.  Senator, 
blames  McCuUoch  policy 
for  hard  times  of  1866,  15 

Cattle,  large  exports  of,  in 
1879,  56 

Cervera,  Admiral,  defeated 
by  American  fleet  in  1898, 
279 

"Chain  banking,"  in  New 
York,  its  part  in  1907 
panic,  365 

Chamber  of  Commerce,  New 
York,  declaration  of  1896 
on  the  public  credit,  353; 


prediction  to,  in  1906,  of 
coming  panic,  329 

Chaplin,  Henry ,member  Brit- 
ish Parliament,  opposes 
free  right  of  entry  to  Amer- 
ican grain,  55 

Chase,  Salmon  P.,  Secretary 
U.  S.  Treasury,  regards  the 
legal  tenders  as  a  tempo- 
rary currency,  8 

Chicago,  railway  strike  at, 
220 

Chicago,  Burlington,  and 
Quincy  Railway,  its  large 
earnings  in  resumption 
period,  65;  strike  on,  in 
1888,  116;  bought  up  in 
1 90 1  by  Northern  Pacific 
and  Great  Northern  com- 
panies, 296;  Morgan-Harri- 
man  contest  over,  304 

Chicago,  Rock  Island,  and 
Pacific  Railway,  doubles  its 
stock  in  1880,  64;  its 
heavy  earnings  in  resump- 
tion period,  65 

Chili,  industrial  boom  of  1905 
in,  326;  earthquake  losses 
of  1906  in,  329;  panic  of 
1907  in,  362;  currency- 
depreciation  and  bank  fail- 
ures in,  363 

China,  its  import  of  silver  de- 
creases, 78 

Civil  War,  the,  in  U.  S.,  its 
effect  on  industrial  condi- 
tions, 2 

Clearing-house,  at  New  York, 
abolishes  gold  deposits,  46; 
admits  Sub-Treasury  to 
membership,  47;  excludes 
silver  from  its  balances,  76 ; 
denounced  by  Congress,  7  7 ; 
revokes  its  silver  rule,  80; 
issues  loan  certificates  in 
1884  panic,  100;  in  1890, 
158;  its  use  of  gold  in 
balances  between  banks, 
163;  legal  tenders  displace 


Index 


387 


Clearing-house — Continued 
gold  in  payments  of,  during 
1892,  169,  170;  its  function 
in  gold  export  operations, 
171,  172;  issues  loan  certifi- 
cates in  1893  panic,  192, 
194;  assists  embarrassed 
Mercantile  Bank,  366;  re- 
fuses in  1903  to  exchange 
trust  company  checks  un- 
less reserves  are  increased, 
369;  suspension  of  cash 
payments  at,  in  1907,  373; 
issues  loan  certificates, 
^73;  amount  of,  outstand- 
ing, 373.  374 

Clearing-house,  at  Boston, 
abolishes  gold  deposits,  46 

Cleveland,  Grover,  elected 
Governor  of  New  York,  91, 
92 ;  elected  President  of  the 
United  States,  102;  his  un- 
favorable view  of  Treasury 
situation  in  1885,  103; 
financial  operations  of  his 
Administration,  104,  105, 
106,  107,  no,  112;  defeated 
by  Harrison  in  1888,  130; 
his  popular  plurality  over 
Harrison,  130;  his  view  as 
to  manner  of  tariff  revis- 
ion, 131;  renominated  in 
1892  by  Democratic  party, 
178;  sources  of  his  support, 
179;  South  Carolina  Demo- 
crats protest  against  nom- 
ination of,  179;  re-elected 
President,  181;  his  large 
popular  plurality,  181; 
pledges  gold  red.emption 
of  legal  tenders,  186;  sum- 
mons Congress  in  extra 
session,  197;  repudiates 
compromise  repeal  of  Sil- 
ver-Purchase Act,  199'; 
stops  blockade  of  traffic 
220;  denounces  Senate 
in  Railway  Union  strike. 
Tariff   Bill   of    1894,   226; 


refuses  to  sign  it,  228; 
vetoes  seigniorage  bill,  230 ; 
his  remark  on  the  "endless 
chain,"  232;  defends  the 
bond  contract  ofi89S,236; 
his  final  and  successful 
currency     operation,     252 

Cockrell,  F.  M.,  U.  S.  Senator, 
denounces  foreign  bond- 
investors,  39;  declares  Sil- 
ver-Purchase Act  an  aban- 
donment of  bimetallism, 
150 

Codman,  Charles  R.,  opposes 
McKinley  on  imperialism 
issue,  292 

Coinage  of  silver  dollars,  see 
Silver 

Collateral  trust  bonds,  use  of, 
in  1 90 1  promoting  craze, 
296 

Colorado,  carried  by  Demo- 
crats in  1882,  92;  its  Sena- 
tors vote  against  Silver- 
Purchase  Bill,  147;  its 
Democratic  Convention  of 
1892  demands  free  coinage, 
179;  repudiates  national 
convention's  currency  plat- 
form, 179;  carried  in  1892 
by  Populist  party,  181 

Commercial  failures,  see  Fail- 
ures in  business 

Congress  of  U.  S.,  pledges  in 
1865  retirement  of  the 
legal  tenders,  1 1 ;  passes 
contraction  bill,  1 1 ;  its  de- 
bate on  contraction,  12; 
revokes  contraction  power, 
15;  condemns  Johnson's 
repudiation  plan,  1 7 ;  passes 
Public  Credit  Act  of  1869, 
1 7 ;  scandals  of,  during  in- 
flation period,  18;  passes 
Inflation  Act  of  1874,  20; 
Republicans  lose  control 
of,  20;  passes  Resump- 
tion   Act,  2 1 ;    undertakes 


388 


Index 


Congress  of  U.  S. — Continued 
to  wreck  the  resumption 
plan,  34;  House  votes  re- 
peal of  Resumption  Act, 
35 ;  passes  Free-Silver 
Coinage  Bill  of  1878,  35, 
38;  motives  of,  in  1878,  37; 
its  attack  on  foreign  bond- 
subscribers,  3  9 ;  party 
chaos  in,  during  1878,  40; 
its  sectional  votes,  40; 
passes  Silver  Bill  over 
Presidential  veto,  41;  ad- 
journs, 42;  influence  of 
1878  elections  on,  44 ;  votes 
for  compulsory  reissue  of  le- 
gal tenders,  49;  denounces 
New  York  Clearing-house, 
77;  forces  revocation 
of  Clearing-house  rule  re- 
garding silver,  77;  its  un- 
willingness in  1882  to  re- 
duce the  tariff,  88;  adopts 
policy  of  extravagant  ex- 
penditure, 89 ;  increases 
pension  appropriations,  89 ; 

g asses  River  and  Harbor 
lill  over  veto,  90;  its  policy 
rebuked  in  1882  elections, 
9 1 ;  resists  the  tariff  re- 
vision movement,  92; 
passes  Tariff  Act  of  1883, 
93;  authorizes  issue  of 
small  silver  certificates, 
108;  defeats  free-coinage 
bill  of  1886,  117;  House 
of  Representatives  passes 
Mills  Tariff  Bill,  125;  au- 
thorizes bond  redemptions 
at  a  premium,  125;  its 
vicious  methods  of  appro- 
priation, 133;  adopts  Mc- 
iCinley  Tariff  Act,  134;  its 
estimates  of  revenue  re- 
duction, 135,  136;  its  wild 
extravagance  during  1890, 
^36;  political  situation  of, 
111  1889,  141;  tariff  changes 
opposed    in,     141;    silver 


sentiment  in,  141;  action 
on  Silver-Purchase  Bill, 
147,  148,  149;  defeats  free- 
coinage  substitute,  148; 
asserts  gold  redemption 
under  the  Act,  150;  fixes 
the  hundred-million  gold 
reserve  in  1882,  166,  167; 
House  divides  equally  in 
1892  on  free-coinage  bill, 
174;  Senate  passes  bill, 
1 74 ;  tariff  reduction  bills  of 
1892,  passed  by  House,  175; 
rejected  by  Senate,  175; 
promises  economy,  in  1892, 
176;  increased  extrava- 
gance of,  176;  Democrats 
obtain  control  of,  181; 
extra  session  of,  in  1893, 
197;  struggle  over  repeal 
of  Silver-Purchase  Law, 
197-199;  sectional  division 
in,  198;  repeals  the  law, 
199;  refuses  relief  to  the 
Treasury,  208,  210;  at- 
tacks the  bond-issue  of 
1894,  211;  apathy  of  con- 
servatives in,  212;  its  atti- 
tude towards  tariff  revi- 
sion, 223;  motives  of  the 
House,  225;  of  the  Senate, 
225;  action  of  the  two 
houses  on  Wilson  Bill,  225, 
226;  delusive  hopes  of, 
from  income  tax,  227; 
passes  seigniorage  bill,  230; 
refuses  to  authorize  gold 
bond,  235;  outcry  of, 
against  1895  bond-issue, 
236;  Republicans  regain 
control  of,  249;  passes 
Gold  Standard  Act,  254; 
tariff  legislation  of,  in  1897, 
269;  Anti-Trust  Bill  of  1890 
in,  344;  passes  Railway 
Rate  Bill  of  1906,  351, 
352 
Connecticut,  goes  Democratic 
in  1877  and  Republican  in 


Index 


3^9 


Connecticut — Continued 

1878,  44;  Democrats  carry, 
in  1882,  92 

Consolidated   Lake   Superior 

Company,    failure    of,    in 

1903,  310 
Consols,  British,  low  price  of, 

in  1894,  213 
Copper,    effort    of    1901    to 

control   market   for,    308; 

violent  rise  of  1906  in,  316 
Com,  large  crop  of,  in  1879, 

56;  failure  of  crop  in  1894, 

221 ;  influence  of  failure  on 

syndicate  operations,  245; 

failure  of  crop  in  1901,  308; 

maximum  yields  of   1905 

and  1906,  315 
Cornell,   Alonzo   B.,   elected 

Governor  of  New  York  in 

1879,  68,  91 
"Comers,"  in  wheat,  during 

1879,  60;  in  wheat  and 
coffee  during  1887,  114; 
in  wheat  during  1888,  115; 
in  wheat  during  1898,  280; 
of  1 90 1,  in  Northern  Pacific 
stock,  306 

Cost  of  living,  great  rise 
in,  during  1905  and  1906, 
318;  hardship  caused  by, 
332 

Cotton,  depressed  market  for, 
after  resumption,  51;  re- 
vival of  market  for,  in 
1879,  57;  speculation  in, 
during  1882,  85;  over- 
production of,  in  1882,  87; 
large  American  consump- 
tion of,  in  1889,  120;  rise 
in  price  of,  during  1895, 
242;  rise  in  price  of,  be- 
tween 1897  and  1900,  261; 
export  of,  after  1896,  261; 
its  low  record  price  in  1895, 
262 ;  large  yield  of,  in  1905, 
315;  high  price  of,  in  1906, 
317;  effort  of  planter  to  fix 
price,  317 


"Coxey's  Army,"  march  of, 
in  1894,  219 

Grossman,  W.  H.,  &  Co., 
break  through  bond  syndi- 
cate's plans  in  1895  gold 
market,  248 

Cuba,  loans  to,  by  American 
capital,  258 

Currency,  of  the  United 
States  {see  also  Bank 
notes,  Gold,  Legal  tenders, 
and  Silver),  discussions  on, 
effected  by  price  of  grain, 
5 ;  condition  of,  at  close  of 
the  Civil  War,  7,  9;  con- 
traction plan  of  1866,  II, 
12,  15;  danger  to,  opinion 
of  President  Hayes,  72; 
movement  of,  in  1879,  75, 
76;  active  interior  demand 
for,  in  1880,  81,  82;  in- 
crease of,  while  trade  de- 
mand decreased,  97 ;  opera- 
tions in,  by  the  first  Cleve- 
land Administration,  105, 
106,  107,  108;  change  in 
composition  of,  after  1885, 
III,  112;  heavily  con- 
tracted in  1888,  through 
Treasury  surplus,  123,  126; 
party  declarations  on,  in 
1888,  138,  139;  Secretary 
Windom's  views  regarding, 
145;  inflation  of,  under  the 
lawsof  1890,  151,  154,  155, 
159,  162;  effect  of  its  re- 
dundancy, on  foreign-ex- 
change market,  162;  vol- 
ume of,  not  a  necessary 
cause  for  high  prices,  i6y, 
party  declarations  on,  in 
1892, 177, 178, 179;  Popu- 
lists demand  that  it  be 
doubled,  180;  hoarding  of, 
during  1893  panic,  190, 
194;  premium  on,  in  New 
York  City,  194,  195;  enor- 
mous increase  in,  during 
1893,  202;  reaches  its  larg- 


390 


Index 


C  urrency — Continued 

est  volume  in  1894,  230; 
syndicate  operations  in- 
crease supply  of,  247;  re- 
duction of,  through  bond- 
issues,  250,  251,  252,  253; 
hoarding  of,  in  1907  panic, 
374;  makeshift  issues  of, 
by  banks,  374;  premium 
on,  375 

Customs  revenue,  require- 
ment of  payment  in  coin 
revoked,  47;  large  increase 
in,  after  resumption, 87 ;  not 
materially  affected  by  Tar- 
iff Act  of  1883,  96;  heavy 
expansion  of,  after  1886, 
113;  causes  for  rise  in, 
114, 115, 121, 123;  decrease 
in,  under  McKinley  Act, 
134,  135;  effect  of  1893 
panic  on,  205;  insufficient, 
under  Act  of  1894,  226, 
227;  effect  of  Dingley 
Tariff  of  1897  on,  269 

Daniel,  John  W.,  U.  S.  Sena- 
tor, his  opinion  of  Silver- 
Purchase  Act,  150 

Darling,  W.  A.,  U.  S.  Con- 
gressman, his  opinion  of 
the  legal  tenders,  13;  of 
protective  tariff ,  13 

Deficit  of  revenue  in  U.  S. 
government  finances,  be- 
gins in  1891,  138;  Congress 
of  1892  fails  to  remedy, 
175,  176;  met  out  of  the 
gold  reserve,  204;  Sher- 
man's theory  regarding, 
222;  mistaken  views  of, 
in  Congress,  224;  amount 
of,  under  Tariff  Act  of 
1894,  227;  influence  of  in- 
come-tax annulment  on, 
229;  effect  of  Dingley 
Tariff  of  1897  on,  269 

Democratic  party,  adopts  re- 
pudiation issue  in  1868, 16; 


loses  the  Presidential  elec- 
tion, 16;  gains  control  of 
the  House,  20;  its  Con- 
gressmen vote  unani- 
mously against  Resump- 
tion Act,  2 1 ;  threaten  to 
repeal  the  act,  21;  its 
opposition  to  resumption 
plans,  35,  37,  42;  its  divi- 
sion of  opinion  in  1878,  44; 
its  pro-silver  tendencies  in 
1879,  66;  its  defeat,  68; 
its  currency  plank  in  1880, 
69;  defeated  in  the  Presi- 
dential election,  7 1 ;  elec- 
toral victories  in  1882,  91; 
elects  Cleveland  President, 
102;  demands  tariff  reduc- 
tion in  1888,  128;  defeated 
in  Presidential  election, 
130;  attitude  of,  regarding 
silver  in  1888,  139;  its 
Congressmen  vote  unani- 
mously against  Silver-Pur- 
chase Bill,  151;  victory  in 
1890  elections,  173,  174; 
its  equivocal  money  plat- 
form of  1892,  177,  178; 
attitude  of,  in  West  and 
South,  179;  wins  the  1892 
election,  181;  breach  in, 
during  session  of  1893,  198  5 
majority  of  its  Congress- 
men vote  for  free  coinage, 
198;  attitude  of,  on  bond- 
issue  question,  207;  tariff 
revision  in  Congress  de- 
manded by,  223;  conflict- 
ing tariff  views  of,  in  House 
and  Senate,  225;  its  dis- 
ruption in  1896  over  sil- 
ver, 262 ;  nominates  Bryan, 
263;  its  free-coinage  plat- 
form, 263;  defeated,  266; 
renominates  Bryan  in  1900, 
291;  declares  again  for 
silver,  291;  political  chaos 
in,  292;  defeated,  293; 
unprecedented  majority  of 


Index 


391 


Democratic  party — Continued 
1904  against,  311;  de- 
feated again  in  1908,  379 

Denmark,  panic  of  1907  in, 

363 

Dewey,  Admiral  George,  de- 
feats Spanish  fleet,  279 

Dingley  Tariff  Law,  see 
Tariff. 

Dry-goods  industry,  depres- 
sion at  resumption  of 
specie  payments,  5 1 ;  pros- 
perity m,  at  close  of  1879, 
58;  profitable  trade  in, 
during  1888  and  1889,  114; 
improvement  of,  in  1895, 
242;  heavy  cut  in  prices 
and  wages  in,  during  1908, 

378 
Dun's  Review,  its  index  num- 
ber of  prices  after   1897, 
260 


Eckels,  James  H.,  U.  S. 
Comptroller  of  the  Cur- 
rency, his  opinion  of  inter- 
est payment  on  deposits  of 
interior  banks,   i8p 

Economist,  London,  its  view 
of  agricultural  conditions 
in  1879,  55;  of  the  U.  S. 
gold  exports  in  1891,  165; 
of  the  syndicate  under- 
taking of  189^,  239;  of  the 
American  shipping  com- 
bination, 302 ;  of  copper 
manipulation  in  the  U.  S., 
316,  of  London's  loans  to 
New  York  in  1906.  358;  its 
index  number  of  prices, 
260,  315,  316 

Edmunds,  George  P.,  U.  S. 
Senator,  draws  up  Specie 
Resumption  Bill,  21 

Egypt,  land  and  stock  spec- 
ulation in,  between  1905 
and  1907,  325;  panic  of 
1907    in,    360;    crisis    de- 


scribed by  Egyptian  bank- 
ers, 361 
Elections,  of  1868,  16;  of 
1874,  20;  of  1876,  34;  of 
1878,  44;  of  1879,  65,  68; 
of  1880,  71;  of  1882,  91, 
92;  of  1884,  102;  of  1888, 
130;  of  1890,  173;  of  1892, 
180,  i8i;  of  1894,  249;  of 
1896,  253,  262;  of  1900, 
291;  of  1904,  311;  of  1908, 


Iki 


Elkins  Anti- Rebate  Law  of 
1903,  used  as  basis  of  suit 
of  1907  against  Standard 
Oil  Company,  350 

England,  relations  to  the 
American  money  market, 
14,  15;  crop  failure  of  1879 
in,  53,  54,  55 ;  ships  gold  to 
U.  S.,  58;  increase  in  man- 
ufacturing trade  of,  after 
1886,  119;  export  trade 
expanded,  119,  120;  enor- 
mous investments  of,  in 
foreign  securities,  120,  122; 
speculative  markets  of, 
early  in  1890,  156;  London 
panic  in,  157;  liquidation 
of  security  holdings  by, 
after  1890,  158;  heavy 
sales  of  American  securi- 
ties by,  in  1891,  165;  se- 
curity issues  in,  after  1890, 
243 ;  gold-mining  craze  of 
1895  in,  243;  buys  Ameri- 
can securities,  244;  slow- 
ness of  responding  to  trade 
boom  after  1897,  260;  war 
with  Transvaal,  280;  gold 
supplies  cut  off,  281;  its 
heavy  war  loans,  282; 
borrows  from  American 
bankers,  282 ;  alarmed  over 
American  buying  of  steam- 
ship lines,  302;  finances 
Japan  in  Manchurian  war, 
320;  iron  production  of 
1906   in,    324;   large   gold 


392 


Index 


England — Contintied 

imports  of  1907  from,  by- 
New  York,  375;  advises 
government  intervention  in 
our  panic,  376 

Equitable  Life  Assurance 
Company  {see  also  Life  In- 
surance), quarrel  in  its 
management  in  1905,  336; 
its  resources  and  capital 
stock,  336;  committee  of 
trustees  investigates,  337, 
338;  legislative  committee 
mvestigates,  338,  339;  sold 
to  Thomas  F.  Ryan,  341 

Erie  Railway,  failure  of,  in 
1893,  194;  reorganization 
of,  in  1895,  277 

Europe,  investments  by,  in 
United  States,  3,  15;  crop 
failure  of  1879  in,  55;  large 
sales  of  merchandise  by,  in 
1883,  97;  after  1886,  119; 
crop  failure  of  1891  in,  163, 
164;  its  appreciation  of  the 
American  currency  dan- 
gers, 165;  estimated  vol- 
ume of  its  investments  in 
American  securities,  217, 
218;  its  heavy  liquidation 
of  such  securities,  in  1893, 
217;  in  1894,  218;  large 
wheat  harvest  of  1894  in, 
221;  buys  American  securi- 
ties in  1895,  241,  243; 
sells  them  back  again,  246, 
251;  ships  gold  to  the 
United  States  in  1896,  253; 
crop  failure  of  1897  in,  270; 
industrial  invasion  of,  by 
America,  predicted  in  1897, 
273;  its  own  industrial 
revival,  274;  imports  steel 
from  United  States,  275; 
sells  back  American  securi- 
ties to  New  York,  280; 
American  credit  balance  of 
1900  in,  282;  recalls  its 
Wall  Street  loans  of  1901, 


305;  extinction  of  Ameri- 
can credit  balance  in,  307; 
loans  of  1905  to  Wall  Street 
speculators,  328;  not  dis- 
turbed over  Railway  Rate 
Law  of  1906,  353;  enor- 
mous advances  of  1906  to 
Wall  Street,  355;  money 
troubles  arise  in,  358; 
stops  loans  to  New  York, 
358;  panic  on  markets  of, 
in  1907,  362,  363;  raid  of 
New  York  market  on  its 
gold  reserves,  375 

Ewing,  Thomas,  nominated 
by  Democrats  in  1879  for 
Governor  of  Ohio,  66;  his 
overwhelming  defeat,  68 

Expenditure  of  U.  S.  govern- 
ment, extravagance  of,  in 
1882,  89;  Republican  Con- 
vention of  1888  recom- 
mends increase  in,  129; 
President  Harrison  sug- 
gests increase  in,  132;  Con- 
gressional recklessness  in, 
during  1890,  136;  Congress 
of  1892  promises  to  reduce, 
176;  instead,  it  increases, 
176 

Export  trade,  in  wheat,  rise 
of,  after  the  Civil  War,  4; 
increase  of,  in  all  commodi- 
ties, after  the  panic  of 
1873,  19;  decrease  early  in 
1879,  51;  in  wheat,  heavy 
increase  later  in  1879, 
56;  in  other  commodities, 
increase  of,  56;  of  1879, 
checked  by  speculation, 
60;  of  1 88 1,  reduced  by  the 
crop  failure,84;  decrease  in, 
after  1885,  121;  checked 
in  1895  by  speculation, 
245;  in  wheat,  large  in- 
crease of  1897  m,  271;  of 
steel  and  iron,  275;  ex- 
traordinary increase,  be- 
tween 1897  and  1901,  276; 


Index 


393 


Export  trade — Continued 
enormous  excess  over  im- 
ports in   1898,   280;  ship- 
ments of  1900  to  Europe 
checked,  290 

Export,  of  gold,  see  Gold;  of 
Silver,  see  Silver 

Failures  in  business  in  the 
United  States,  in  1877  and 
1878,  34;  in  1880,  65;  in 
1886  and  1888,  119;  in 
1893,  201;  large  numbers 
of,  in  1897,  268;  record  of, 
after  1907  panic,  377 

Fairchild,  Charles  S.,  Secre- 
tary U.  S.  Treasury,  his 
operations  with  the  Treas- 
ury surplus,  123-125;  his 
opinion  of  bond-buying  at 
a  premium,  123 

Felton,  W.  H.,  U.  S.  Senator, 
denounces  foreign  bond 
investors,  39 

Fessenden,  W.  P.,  Secretary 
U.  S.  Treasury,  regards  the 
legal  tenders  as  a  tempo- 
rary currency,  8 

Field,  Stephen  J.,  Associate 
Justice  U.  S.  Supreme 
Court,  pronounces  income 
tax  of  1894  unconstitu- 
tional, 229 

"Finance  bills,"  Wall  Street 
borrows  from  Europe  on, 
328;  used  again  in   1906, 

355 

Florida,  Democrats  of,  de- 
mand free  coinage,  179 

Folger,  Charles  J.,  Secretary 
U.  S.  Treasury,  urges  re- 
duction of  tariff  duties,  88 ; 
warns  Congress  of  dangers 
in  silver  coinage,  96 

Foraker,  J.  B.,  Senate  speech 
of  1906  on  Railway  Rate 

Bill,  353 
Ford,  W.  C,  Chief  U.  S.  Bu- 
reau of  Statistics,  his  esti- 


mate of  revenue  under 
income  tax,  229 

Foreign  exchange,  high  rates 
of,  after  resumption,  48,  52 ; 
fall  in,  during  1879,  57;  re- 
lation to  the  currency,  78, 
79;  rise  in,  during  1881,  85; 
during  1891,  159,  161; 
nature  of  New  York  opera- 
tions in,  i6i;  rise  in,  dur- 
ing 1892,  166,  171;  during 
1893,  186;  sharp  decline  in, 
during  1893  panic,  193; 
forced  up  by  New  York 
premium  on  currency,  196; 
renewed  rise  in,  at  close  of 
1893,  206;  in  1894,  216— 
218;  bond  syndicate's  oper- 
ations in,  238-240;  fall  in, 
during  1895,  244;  quick 
recovery  in,  246;  high  rates 
for,  248 

Foster,  Charles,  Secretary 
U.  S.  Treasury,  stops  gold 
disbursements  by  Treasury 
in  1892,  170;  prepares  for 
a  bond-issue,  183;  borrows 
gold  from  New  York 
banks,   183 

France,  accumulates  gold 
during  Sherman's  prepara- 
tions for  resumption,  26; 
crop  failures  of  1879  in, 
55;  ships  gold  to  U.  S.,  58; 
gold  shipped  to,  in  1891, 
from  U.  S.,  160,  161;  crop 
failure  of  189 1  in,  163;  its 
short  crop  of  wheat  in  1 8  9  7 , 
2  70 ;  its  holdings  of  Russian 
bonds,  320 ;  finances  Russia 
in  Manchurian  war,  321 

Franco-Prussian  War,  influ- 
ence of,  on  the  price  of 
wheat,  4 

Frick  committee,  investigates 
Equitable  Life  Assurance 
Company,  337,  338 

Fuller,  M.  W.,  Chief  Justice 
U.  S.  Supreme  Court,  pro- 


394 


Index 


Fuller,  M.  W. — Continued 
nounces     income     tax     of 
1894  unconstitutional,  229 


Garfield,  James  A.,  nomi- 
nated for  President  in  1880 
by  Republican  party,  70; 
his  electoral  majorities,  7 1 ; 
effect  of  his  death  on  the 
markets,  83 ;  declares  in 
1872  that  proper  maximum 
of  pension  expenditure  had 
been  reached,  89 

Gary,  E.  H.,  chairman  U.  S. 
Steel  Corporation,  his  ar- 
gument for  maintaining 
steel  prices  after  panic  of 
1907,  378 

Gates,  John  W.,  his  testi- 
mony about  his  industrial 
amalgamations,  287 

George,  Henry,  runs  for  May- 
or of  New  York  in  1886  on 
labor  ticket,  117 

Georgia,  Democratic  Con- 
vention of  1892  demands 
free  coinage,  179 

Germany,  accumulates  gold 
during  this  country's  re- 
sumption operations,  2  6 ; 
adopts  gold  standard  of 
currency,  36;  sells  its  old 
silver  coin,  36,  37;  crop 
failure  of  1879  in,  55; 
exports  gold  to  U.  S.,  58; 
borrows  from  American 
bankers  in  1900,  282;  its 
steamship  lines  withdraw 
from  Shipping  Trust  nego- 
tiations, 302;  large  issue  of 
new  securities  in,  during 
1905,  323;  iron  output  01 
1906  in,  324;  speculative 
mania  of  1905  in,  325;  pan- 
ic of  1907  in,  362 

Gilbert,  Alexander,  president 
N.  Y.  Clearing-house  Asso- 
ciation,  on    Wall   Street's 


enormous  borrowings  of 
1906,  355,  356 
Gold,  premium  on,  influence 
upon  prices,  9;  entire 
American  product  ex- 
ported dunng  inflation 
years,  14,  25;  sales  of,  by 
the  Treasury,  14,  26;  con- 
spiracy in  the  market  for, 
during  1869,  18;  export  of, 
checked,  19;  stock  of,  in 
United  States  in  1877,  25; 
foreign  banks  unwilling 
to  part  with,  26;  govern- 
ment bonds  declared  pay- 
able in,  by  Secretary  Sher- 
man, 29 ;  hostile  operations 
in  1878  market  for,  30; 
adopted  as  currency  stand- 
ard by  Germany,  3  6 ;  Treas- 
ury's holdings  of,  at  re- 
sumption, 45;  special  bank 
accounts  in,  abolished,  46; 
New  York  holdings  of,  at 
resumption,  48 ;  exports  of, 
in  1879,  53 ;  heavy  imports 
of,  from  Europe,  58;  Treas- 
ury holdings  of,  increased, 
58 ;  used  for  regular  govern- 
ment expenditure,  59 ;  legal 
tenders  recognized  as  re- 
deemable in,  74;  silver 
dollars  not  legally  con- 
vertible into,  77;  Treasury 
reserve  of,  decreases  in 
1882,  80;  payments  of,  by 
banks,  for  Treasury  silver, 
82;  exports  of,  in  188 1,  85; 
heavy  shipments  during 
1884,  97 ;  use  of,  in  revenue 

Kay  men  ts  decreases,  97; 
[cCuUoch's  views  regard- 
ing displacement  of,  by 
silver,  1 03 ;  Treasury  re- 
serve of,  declines,  104; 
five  millions  of,  borrowed 
in  1885  by  Treasury  from 
banks,  104;  redemption  of 
notes  of  1890  in,  provided 


Index 


395 


Gold — Continued 

for,  149,  150;  large 
amounts  of,  borrowed  by 
Bank  of  England  from 
France  and  Russia,  158; 
imports  of,  by  U.  S.,  in 
1890,  158;  heavy  exports 
of,  early  in  1891,  159;  pop- 
ular explanations  of  ex- 
ports of,  160;  exports  of, 
caused  by  redundant  cur- 
rency, 161,  162;  Treasury's 
enormous  disbursements 
of,  in  1890  and  1891,  162; 
importation  of,  in  1891, 
164;  presented  again  to 
Treasury  for  legal  tenders, 
164;  large  exports  of,  in 
1892,  166;  fall  in  Treas- 
ury's reserve  of,  166; 
amount  of,  reserved  by  law 
for  redemption  purposes, 
167;  decrease  in  payments 
of,  in  public  revenue,  168; 
decreased  use  of,  in  settle- 
ments between  banks ,  1 6  8 , 
169;  Treasury  abandons 
use  of,  in  its  own  pay- 
ments, 170;  provided  by 
banks  for  export,  prior  to 
1892,  171 ;  Treasury's  stock 
of,  heavily  drawn  upon  by 
legal  tenders  presented  for 
redemption,  172;  heavy 
withdrawals  of,  at  close 
of  1892,  183;  Treasury- 
borrows  six  millions  of, 
from  New  York  banks, 
183;  amount  of,  left  in 
Treasury  by  Harrison  Ad- 
ministration, 184;  twenty - 
five  millions  of,  borrowed 
by  Treasury  in  1893  from 
banks,  185;  issue  of  Treas- 
ury certificates  for,  sus- 
pended, 185;  redemption 
of  notes  of  1890  in,  rumor 
of  its  suspension,  185;  use 
of,     for   note    redemption 


pledged  by  President  Cleve- 
land, 186;  imports  of,  dur- 
ing panic  of  1893, 194, 196; 
becomes  almost  the  sole 
medium  of  exchange,  196; 
heavy  payments  of,  in 
public  revenue,  203;  still 
larger  use  of,  in  Treasury's 
1893  disbursements,  204- 
206;  renewed  fall  in  Treas- 
ury reserve  of,  206,  209: 
amount  of,  needed  for 
reserve,  Carlisle's  opinion 
on,  209;  bond-issue  to  ob- 
tain, announced,  210,  211; 
issue  of  bonds  for,  declared 
legal  by  courts,  212; 
amount  of,  paid  for  loan 
of  February,  1894,  215; 
withdrawals  of ,  from  Treas- 
ury, by  bond-subscribers, 
215;  Treasury's  use  of, 
in  regular  disbursements, 
checked,  216;  exports  of, 
in  1894,  begin  again,  217; 
causes  of,  218,  219;  New 
York  banks  lend  fifteen 
millions  more  to  Treasury, 
231;  withdrawals  of,  for 
bond-issue  of  1894,  231; 
contract  for,  with  Bel- 
mont-Morgan Syndicate, 
237;  withdrawals  of, 
stopped,  241;  Treasury  re- 
serve of,  restored,  241; 
discoveries  of,  in  South 
Africa,  243;  export  of,  re- 
sumed, 248;  withdrawals 
of,  for  loan  of  1896,  251; 
premium  bid  for,  252; 
imports  and  exports  of, 
simultaneous,  252;  exports 
of,  early  in  1896,  253: 
heavy  imports  of,  253; 
fall  and  rise  during  1896  in 
Treasury  reserve,  254; 
government  reserve  of,  le- 
gally established  in  1900, 
354;     rapid     increase     in 


396 


Index 


Gold — Continued 

world's  production  after 
1896,  259;  New  York  pre- 
mium on,  during  free  coin- 
age campaign,  266;  drawn 
from  Treasury  on  eve  of 
1896  election,  266;  re- 
turned after  Bryan's  de- 
feat, 267;  large  import  of, 
after  1897  harvest,  271; 
flow  of,  into  Treasury, 
272;  export  in  1899,  to 
pay  for  Philippines,  280; 
unseasonable  shipment  of, 
in  1 90 1  to  Europe,  307; 
increase  in  Transvaal  out- 
put after  Boer  War,  313; 
import  of,  from  Europe 
facilitated  in  1906  by  U.  S. 
Treasury,  357;  large 
amounts  bought  at  a  pre- 
mium in  London  by  New 
York,  during  1907  panic, 
375;  imports  of,  375;  loss 
of,   by  Bank  of  England, 

375 
Gold      Democracy     opposes 
Bryan  in  1896  and   1900, 

293 

Gold  Standard  Act  of  1900, 
254;  its  provisions,  254; 
how  its  success  was  as- 
sured, 272 

Goluchowski,  Count  Agenor, 
Austrian  Minister  of  For- 
eign Affairs,  his  prediction 
at  Vienna  about  the  Ameri- 
can industrial  invasion, 
273;  basis  for  it,  274 

Gorman,  Arthur  P.,  United 
States  Senator,  defends 
the  Senate's  protectionist 
legislation  of  1894,  227 

Gould,  Jay,  his  railway  oper- 
ations in  1880,  63;  his 
methods,  63,  64;  his  great 

Sower,   64;  his  exhibit  of 
is  security  holdings,   86; 
his  statement  of  1889  re-  I 


garding  railway  conditions, 

345 

Government  bonds,  see  Bonds 
of  the  United  States. 

Grain  trade,  American  (see 
also  Agriculture,  Corn,  and 
Wheat) ,  its  expansion  after 
the  Civil  War,  3;  increase 
after  1873  panic,  19;  great 
activity  of,  during  1879 
and  1880,  56,  59;  affected 
by  foreign  competition  af- 
ter 1885,  121;  activity  in, 
during  1891,  164;  depres- 
sion of  1894  in,  221; 
checked  in  1895  by 
speculation,  245;  great 
prosperity  of ,  in  18^7,  271; 
world-wide  activity  of 
1905  in,  314 

Grant,  Ulysses  S.,  elected 
President  of  the  United 
States  in  1868,  16;  his 
Administration  and  the 
scandals  of  inflation  period, 
18;  vetoes  inflation  act, 
20;  candidate  in  1880  for 
Republican  nomination,  70 

Grant  &  Ward,  failure  of,  in 
panic  of  1884,  100 

Gray,  Horace,  Associate 
Justice  U.  S.  Supreme 
Court,  pronotmces  income 
tax  of  1894  unconstitu- 
tional, 229 

Great  Northern  Railway 
Company  shares  in  pur- 
chase of  Chicago,  Burling- 
ton, and  Quincy,  296 

Haller,  Soehle  &  Company, 
failure  of,  in  Hamburg 
panic  of  1907,  362 

Hamburg,  panic  of  1907  in, 
362 

Hancock,  Winfield  S.,  nomi- 
nated for  President  in  1880 
by  the  Democrats,  7 1 ;  de- 
feated in  the  election,  71 


Index 


397 


Harnman,  Edward  H.,  presi- 
dent Union  Pacific  Rail- 
way, fight  with  Morgan  for 
control  of  Northern  Pacific, 
304;  his  supporters,  305; 
nis  use  of  Union  Pacific's 
credit  in  1901,  305; 
extraordinary  borrowing 
powers  granted  to,  334, 
335;  describes  his  purposes 
of  railway  acquisition,  335; 
demands  half  of  Equitable 
Life  stock  purchased  by 
Ryan,  341 

Harrison,  Benjamin,  Presi- 
dent of  the  United  States, 
his  electoral  majority,  130; 
his  views  on  tariff  revision, 
131;  on  public  expendi- 
ture, 132,  133 ;  on  pensions, 
132;  interferes  in  the  pen- 
sion extravagance ,  138; 
his  curious  remarks  on 
Windom  silver  plan,  140; 
approves  enlarged  use  of 
silver  in  currency,  143 ; 
disapproves  free-coinage 
legislation,  148;  defends 
Silver- Purchase  Act,  154; 
his  misjudgment  of  the 
trade  situation,  154-156 

Hayes,  John  L.,  made  presi- 
dent of  Tariff  Commission 
of  1882,  92;  his  view  of 
tariff-reduction  policy,   93 

Hayes,  Rutherford  B.,  Presi- 
dent of  the  United  States, 
favors  maintaining  silver 
as  a  precious  metal,  7; 
elected  Governor  of  Ohio, 
27;  elected  President,  27; 
troubles  of  his  Administra- 
tion, 33 ;  his  disputed  title, 
34;  vetoes  Bland  Silver 
Bill,  41;  his  negative  in- 
fluence on  Congress,  4 1 ; 
refuses  renomination  for 
Presidency,  69 ;  advises  re- 
tirement of  legal  tenders. 


72 ;  his  opinion  as  to  results 
of  compulsory  coinage,  74 

Heidelbach,  A.  S.,  his  esti- 
mate of  foreign  invest- 
ments in  the  United  States, 
218 

Hepburn  Act,  see  Railway 
Rate  Law  of  1906. 

Hill,  Benjamin  H.,  U.  S.  Sen- 
ator, his  view  of  the 
Matthews  Resolution,  38 

Hill,  James  J.,  president 
Great  Northern  Railway, 
associated  with  Morgan  in 
Northern  Pacific  contest, 
^04;  remark  on  "indigest- 
ible securities,  "309;  state- 
ment regarding  railways' 
needs  for  capital  in    1906, 

359 

Hoarding  of  currency  m 
American  financial  panics: 
in  1893,  191;  in  1907,  374 

Holden,  E.  H.,  chairman 
London  City  and  Midland 
Bank,  on  Wall  Street's 
borrowings  of  1905  from 
London,  325;  on  "finance 
bills"  of  1906,  328 

"Holding  companies,"  used 
for  industrial  amalgama- 
tions of  1 90 1,  296;  princi- 
?le  adopted  m  Steel 
rust,  299;  Supreme  Court 
on  possible  scope  of  the 
plan,  336 

Holland,    panic    of   1907   in 

363 

Hooper,  Samuel,  U.  S.  Con- 
gressman, regards  legal 
tenders  as  a  temporary 
currency,  8 

House  of  Representatives, 
see  Congress. 

Howe,  T.  O.,  U.  S.  Senator, 
opposes  Hayes  Adminis- 
tration's policy,  43 

Hughes,  Charles  E.,  counsel 
for    legislative    committee 


398 


Index 


Hughes,  Charles  E. — 

Continued 
to  investigate  insurance 
abuses,  339 

Hyde,  James  H.,  vice-presi- 
dent Equitable  Life  com- 
pany, withdrawal  de- 
manded by  president,  337; 
sells  his  stock  to  Thomas 
F.  Ryan,  341 

Idaho,  Democrats  of,  demand 
free-coinage  law,  179; 
choose  Populist  electors  in 
1892, 179 

Illinois,  its  Congressmen  vote 
solidly  for  Bland  Silver 
Bill,  40;  goes  Democratic 
in  1890,  174;  Democrats 
of,  favor  free  coinage  in 
1892, 179 

Immigration  to  the  United 
States,  after  the  Civil  War, 
3;  increase  in,  after  re- 
sumption, 61;  reaches  its 
maximum  in  1882,  61; 
decrease  of,  in  ensuing 
years,  115;  increase  in, 
during  1888,  115 

"Imperialism,"  made  an  is- 
sue in  1900  election,  291; 
Bryan  endorsed  on  issue 
of,  292 

Import  trade  of  U.  S.,  enor- 
mous increase  of,  during 
inflation  period,  18,  19; 
stimulated  in  1881  by 
home  speculation,  84; 
effect  on  public  revenue, 
87;  heavy  increase  in, 
after  1886,  113;  reasons 
for  increase  in,  119-121; 
character  of  increase  in, 
121;  sudden  decrease  in, 
after  1893  panic,  205; 
violent  enlargement  of,  in 
1895,  245;  contraction  of, 
in  1896,  253 

Income    tax   of    1894,    Con- 


gressional ideas  regarding, 
227;  Supreme  Court  dis- 
cusses, 228,  229;  pro- 
nounced unconstitutional, 
229;  its  probable  yield 
over-estimated,  229 

India,  deficient  cotton  crop 
of  1879  in,  57;  silver  im- 
^  ports  of,  decrease  after 
1877,  78;  increase  in  wheat 
exports  from,  122 ;  effect  of 
suspension  of  silver  coin- 
age in,  200;  crop  failure 
in,  during;  1896,  265 

Indiana,  its  Congressmen 
vote  solidly  for  Bland 
Silver  Bill,  40;  Democratic 
Convention  of  1878  op- 
poses resumption,  42;  Re- 
publican Convention  in, 
opposes  financial  agitation, 

43 

Ingalls,  J.  J.,  U.  S.  Senator, 
opposes  Hayes  Adminis- 
tration's policy,  43 

Insurance  scandal  of  1905, 
see  Life   Insurance. 

Internal  revenue,  taxes  re- 
duced by  Act  of  1883, 
93-96;  increase  in  receipts 
from,  after  1886,  113; 
enlarged  in  1888  by  active 
home  consumption,  123; 
total  abolition  of,  sug- 
gested by  Republican  Con- 
vention, 129 

Interstate  Commerce  Com- 
mission, report  on  railway 
bankruptcies  of  1893,  276; 
Harriman's  testimony  of 
1907  before,  335;  its  report 
on  Union  Pacific's  railway 
purchases,  335;  authorized 
by  law  of  1906  to  fix  rates, 
352 

"Invasion,"    the   American, 

^73  .      „ 
Iowa,  its  Congressmen  vote 
solidly    for    Bland    Silver 


Index 


399 


Iowa — Continued 

Bill,  40;  Democratic  Con- 
vention in,  during  1878 
opposes  resumption,  42 ; 
carried  easily  by  Republi- 
cans in  1879,  68;  Demo- 
crats of,  favor  free  coinage 
in  1892,  179 

Iron,  depression  in  market 
for,  after  resumption,  51; 
violent  advance  in,  during 
1879,  57;  speculation  in, 
during  1880,  60,  61;  over- 
production of,  in  1882,  87; 
large  consumption  of,  after 
1885,  115,  120;  rise  in  price 
of,  115;  active  market  for, 
in  1895,  242;  rise  in  price 
of,  between  1897  and  1900, 
261;  depression  in  trade 
during  1897,  268;  rapid 
advance  in  price  during 
1899,  289;  decline  of  1900 
in,  290;  advance  between 
1904  and  1906,  316;  un- 
precedented world's  out- 
put in  1906,  324;  severe  de- 
pression in,  after  1907 
panic,  377 

Japan,  begins  war  with  Rus- 
sia, 320 ;  raises  loans  in  Eng- 
land and  United  States, 
321;  victories  over  Russia, 
322;  cost  of  war,  322;  ex- 
cited speculation  in,  after 
the  peace,  325;  financial 
misgivings  of  1906  over, 
326;  outbreak  of  panic  in, 
during  1907,  361 

Johnson,  Andrew,  President 
of  the  United  States,  pro- 
poses to  repudiate  interest 
on  the  government  debt, 
17;    his    proposition    con- 

•    demned  by  Congress,  1 7 

Johnson,  John  G.,  admission 
regarding  Northern  Securi- 
ties combination,  336;  ar- 


gument for  company  before 
U.  S.  Supreme  Court,  348 

Jones,  John  P.,  U.  S.  Senator, 
believes  that  Silver-Pur- 
chase Act  would  raise 
price  of  silver,  151 

Jordan,  C.  N.,  U.  S.  Treas- 
urer, his  plans  for  circulat- 
ing Treasury  silver,  no 

Kaffir  gold  mines,  discovery 
of,  243 ;  speculative  craze 
in  London  over,  244 

Kansas,  its  Congressmen  vote 
solidly  for  Bland  Silver 
Bill,  40;  goes  Democratic  in 
1882,  92;  Democrats  of, 
demand  free  coinage,  179; 
chooses  Populist  electors 
in  1892, 181 

Kansas  Pacific  Railway,  its 
dishonest  amalgamation 
with  the  Union  Pacific,  63, 
64 

Kelley,  W.  D.,  U.  S.  Con- 
gressman, his  opinion  on 
contraction  of  the  legal 
tenders,  12;  on  protection, 
13 ;  opposes  Hayes  Admin- 
istration's policy,  43 

Knickerbocker  Trust  Com- 
pany of  New  York,  run  of 
1907  on,  366;  suspension 
of,  370;  results  on  other 
trust  companies,  370,  371 

Knights  of  Labor,  their 
strikes  in  1886  and  1888, 
116;  apply  for  injunction 
against  bond-issue  of  1894, 
211 

Knox,  John  J.,  Comptroller 
U.  S.  Currency,  approves 
government  bond  deposits, 
33 ;  disapproves  interest 
payment  on  interior  bank 
deposits,  189 

Knox,  P.  C,  Attorney-Gen- 
eral of  U.S.,  attacks  North- 
em  Securities  merger,  347; 


400 


Index 


Knox,  P.  C. — Continued 
his  argument  in  court,  347 ; 
wins  suit,  349;  speech   in 
Senate  on   Railway   Rate 
Bill,  353 

Koch,  Dr.,  President  Bank 
of  Germany,  report  on 
German  speculative  mania 

of  1905.325 
Kriiger,       Paul,       President 
Transvaal     Republic,     de- 
clares war  on  England,  280 

Labor,  high  cost  of,  in  1906, 

319 

Labor  troubles  {see  also 
Strikes),  in  1877,  34;  in 
1886,  116;  their  influence 
on  the  politics  of  1886  and 
1888,  1 17;  in  1894,  219,  220 

Land,  speculation  of  1904  and 

1905  in.  317 

Landis,  K.  M.,  Judge  U.  S. 
District  Court,  imposes 
$29,240,000  fine  on  Stand- 
ard Oil  Company,  350,  351 

Legal  tenders,  amount  of, 
outstanding  at  the  close 
of  Civil  War,  7 ;  purpose  of 
their  founders,  8 ;  regarded 
as  a  temporary  currency, 
8 ;  their  effect  on  prices,  9 ; 
McCuUoch  proposes  con- 
traction of,  10;  Congress 
promises  contraction  of, 
11;  contest  over  bill  to 
contract,  11 -13;  contrac- 
tion of,  begun,  11;  act  of 
1866  ineffectual,  13;  con- 
traction power  revoked, 
15;  plan  to  pay  part  of 
government  debt  in,  16; 
redemption  in  coin  prom- 
ised by  Congress,  17;  in- 
crease in  issues  of,  17; 
effect  of  the  inflation  policy 
of,  18;  Supreme  Court  de- 
clares them  constitutional, 
ao;    Congress    votes    new 


issues  of,  in  1874,  20*, 
Grant  vetoes  bill,  20;  act 
to  resume  specie  payments 
on,  passed,  21;  made  per- 
petually redeemable  in 
coin,  23 ;  Sherman  on  ques- 
tion of  reissue,  28,  50; 
Bland's  threat  regarding, 
38;  Western  conventions 
demand  their  substitution 
for  bank  notes,  42;  Sher- 
man's opinion  as  to  proper 
reserve  against,  45;  clear- 
ing-houses agree  to  accept 
equally  with  gold,  46;  cus- 
toms dues  made  payable 
in,  47;  bank  holdmgs  of, 
in  1879,  48;  amount  in 
circulation  fixed  by  Con- 
gress, 49;  their  reissue 
made  compulsory,  50 ;  pre- 
sented at  Treasury  for  re- 
demption, in  1879,  53; 
gold  paid  to  the  Treasury 
for,  58 ;  Hayes  advises  their 
retirement,  72;  Sherman 
believes  them  a  safe  cur- 
rency, .72;  their  ready  cir- 
culation, 75;  supply  of,  in 
New  York  banks,  runs 
short,  8 1 ;  dangers  to  Treas- 
ury reserve  against,  103; 
absorption  of,  in  small 
denominations,  105;  Treas- 
ury substitutes  silver  cer- 
tificates for,  in  outside 
circulation,  108;  payments 
in,  to  the  government  in- 
crease in  1886,  hi;  pro- 
visions of,  applied  to  the 
notes  of  1890,  147,  i4p; 
enormous  increase  of,  in 
circulation,  155,  159;  gold 
exchanged  for,  in  1891, 
164;  gold  reserve  against, 
legal  authority  for,  166, 
167 ;  displace  gold  in  public 
revenue,  1 68 ;  m  New  York 
bank    reserves,     168;    in 


Indi 


ex 


401 


Legal  tenders — Continued 
clearing-house  exchanges, 
169;  in  payments  by  Treas- 
ury, 170;  amount  re- 
deemed in  gold  up  to  189 1, 
172;  presented  in  1892  for 
redemption  in  gold,  172, 
182;  in  1893,  183;  used  to 
obtain  bank  gold  by  Secre- 
tary Foster,  183;  by  Secre- 
tary Carlisle,  184,  185; 
rumors  of  silver  redemp- 
tion for,  185;  Cleveland 
pledges  redemption  of,  in 
gold,  186;  hoarding  of,  in 
panic  of  1893,  190,  196; 
premium  on,  194;  return 
of,  to  circulation,  200;  use 
of,  by  bond-subscribers 
of  1894,  to  obtain  gold, 
215;  exchanged  by  Treas- 
ury for  gold,  231;  pre- 
mium on,  for  bond-sub- 
scription  purposes,   252 

Leroy-Beaulieu,  Paul,  on 
world's  increasing  gold  out- 
put and  gold  reserves  in 
bank,  260;  on  the  exhaus- 
tion of  world's  capital  in 
1906,  329;  j)rediction  of 
coming  reaction,   330 

Ley  land  Steamship  Line, 
bought  by  American  Ship- 
ping Trust,  302;  its  chair- 
man's comment  on  pur- 
chase, 303 

Life  insurance  companies, 
their  use  by  Wall  Street 
promoters  m  1901,  336; 
their  enormous  resources, 
336;  Equitable  Life  scan- 
dal, 337,  338;  investiga- 
tion of,  by  New  York 
legislature,  338,  339,  340; 
abuses  in  management  of, 
339;  reform  law  for,  340, 
341 

Lincoln,  Abraham,  President 
of  the  United  States,  de-  , 


clares  the  legal  tenders  to 

be  a  temporary  currency,  8 

Lincoln  Trust  Company,  run 

of  depositors  on,  in  1907, 

^   370.371 

Loan  certificates,  Clearing- 
house {see  also  Clearing- 
house), issued  in  1884, 
100; in  1890,  158; in  1893, 
192,  194;  in  1907,  373; 
relative  magnitude  of  is- 
sues, 373 

Loans  of  the  U.  S.  govern- 
ment, see  Bonds  of  U.  S. 
government. 

Loans  of  foreign  govern- 
ments: of  England,  for 
Transvaal  War,  282;  of 
Japan,  for  Manchurian 
War,  320;  of  Russia,  321 

London,  panic  of  1890  in, 
163;  "Kaffir  boom"  of 
1895  in,  243;  "Venezuela 
scare"  in,  251;  drafts  on, 
bought  by  frightened  New 
York  bankers  in  1896,  266; 
its  bankers  caught  in 
Northern  Pacific  comer, 
306;  heavy  issues  of  new 
securities  in,  during  1904, 
323;  money  crisis  of  1906 
in,  358;  sends  gold  to 
Egypt  during  1007  panic, 
361;  gold  bougnt  in,  by 
New  York  during  1907,  375 

Louisville  and  Nashville  Rail- 
way, its  large  earnings  in 
the  resumption  period,  65 

Maine,  Democratic  Conven- 
tions of,  in  1879,  declare 
for  free  coinage,  66;  Re- 
publican majority  in,  in- 
creased, 68 

Marine  Bank,  failure  of,  in 
1884, 100 

Massachusetts,  carried  by 
Democratic  party  in  188 a, 
92; in  1890,  174 


402 


Index 


Matthews,  Stanley,  U.  S. 
Senator,  his  resolution  de- 
claring government  bonds 
payable  in  silver,  38;  his 
remark  on  foreign  cus- 
tomers of  the  United 
States,  39;  Sherman's  pe- 
culiar letter  to,  42 

Matthews  resolution,  pro- 
posed, 38;  curious  debate 
on,  39;  sustained  by  many 
Republicans,  40;  has  no 
efJect  on  administrative 
action,  41 

McClellan,  George  B.,  Demo- 
cratic nominee  for  Presi- 
dent in  1864,  16 

McCulloch,  Hugh,  appointed 
Secretary  of  the  Treasury 
by  Lincoln,  10;  his  views 
on  currency  contraction, 
10;  declares  the  contrac- 
tion law  of  1866  ineffective, 
12;  his  opinion  as  to  the 
necessary  conditions  for 
resumption,  13,  28;  his 
unfavorable  view  of  con- 
ditions in  resumption  year, 
51;  reappointed  Secretary 
of  Treasury  by  Arthur, 
103;  his  pessimistic  view 
of  the  silver  question,  103 

McCurdy,  R.  A.,  president 
Mutual  Life  Insurance 
Company,  his  remarkable 
testimony  about  policy- 
holders and  dividends,  339 

McKinley,  William,  U.  S. 
Congressman  and  Presi- 
dent of  the  United  States, 
proposes  tariff  bill  of  1890, 
134;  his  record  on  free- 
silver  coinage,  26^;  nomi- 
nated President  m  1896, 
263;  adopts  gold  standard 
issue,  264;  elected  Presi- 
dent, 266;  opposed  by 
anti-imperialists  in  1900, 
292;   re-elected  President, 


293;  his  probable  atti- 
tude towards  offending 
corporations,  342;  assassi- 
nated in  1 90 1  at  Buffalo, 
342 

McKinley  Tariff  Law,  see 
Tariff. 

McPherson,  John  R.,  U.  S. 
Senator,  asserts  gold  re- 
demption *•  under  Silver- 
Purchase  Act,  151 

Mercantile  National  Bank  of 
New  York,  its  troubles 
precipitate  crisis  in   1907, 

365 

Metropolitan  Bank,  embar- 
rassment of,  in  1884,   100 

Metropolitan  Street  Railway 
of  New  York,  forces  share- 
holders into  a  tricky  lease, 
334;  goes  into  bankruptcy 
in  panic  of  1907,  365 

Mexico,  loans  to,  by  Ameri- 
can investors,  258 

Michigan,  Republican  victory 
of  1879  in,  68;  Republi- 
cans hold,  in  1881,  90; 
carried  by  Democrats  in 
1882,  92;  in  1890,  174; 
Democrats  of,  favor  free 
coinage  in  1892,  179;  rea- 
son for  vote  against  Bryan 
in  1896, 266 

Mills  Tariff  Bill,  see  Tariff. 

Milwaukee  Bank, failure  of,  in 
1893,  194 

Mining  market,  of  Nevada 
and  California,  in  1874, 
36;  of  London,  in  1895,  244 

Minnesota,  its  Congressmen 
vote  solidly  for  Bland 
Silver  Bill,  40;  Republican 
Convention  of  1888  in, 
hints  at  tariff  reduction, 
131;  reason  for  vote 
against  Bryan  in  1896,  266 

Missouri  Pacific  Railway, 
Gould's  influence  on,  63; 
strike  on,  in  1886,  116 


Index 


403 


Money  market,  of  London, 
high  rates  in,  during  1866, 
is;  during  1878,  30;  of 
New  York,  advance  in, 
during  1879,  58;  ex- 
cessively high  rates,  during 
panic  of  1884,  100;  un- 
settled in  1887  by  interior 
land  speculation,  115;  ex- 
cessive advance  in  rates  on, 
in  1890,  158;  disturbances 
in,  early  in  1893,  185,  186; 
panic  m,  191,  192;  Wall 
Street  rate  goes  in  1896 
to  125  per  cent.,  266;  fall 
in  rates  after  election,  267; 
call  rate  at  186  per  cent,  in 
Boer  War  panic,  282;  high 
rates  caused  in  1905  by 
German  speculation,  325; 
squeeze  of  1905  at  New 
York,  327;  Wall  Street 
rate  at  125  per  cent.,  328; 
very  severe  strain  of  1906 
on,  in  New  York,  357;  in 
Europe,  358;  crisis  on, 
during  panic  of  1907,  372; 
currency  goes  to  a  pre- 
mium, 375 

Morgan,  J.  Pierpont,  plans 
billion-dollar  Steel  Trust, 
297;  negotiates  with  Car- 
negie, 298;  organizes  Ship- 
ping Trust,  302;  contest 
tor  control  of  Northern 
Pacific,  304;  interview  on 
"undigested  securities," 
308;  defends  enormously 
capitalized  corporations 
334;  induces  banks  to  lend 
on  Stock  Exchange  during 
1907  panic,  372 

Morgan,  J.  P.,  &  Co.,  con- 
tract with  U.  S.  govern- 
ment in  1895,  236 

Morse,  Charles  W.,  his  ex- 
ploits in  "chain  banking, " 

36s 
Morton,   Levi   P.,   Vice-Pre- 


sident of  the  United  States, 
his  opinion  on  tariff  re- 
vision, 131 
Morton,  O.  P.,  U.  S.  Senator, 
blames  McCuUoch  plan  for 
financial  troubles  of  1866, 

IS 
' '  Muck-raking, "       President 
Roosevelt  on,  340 

Napoleonic  wars,  influence 
of,  on  European  industry, 
2 

National  Banks,  see  Banks  of 
U.S. 

National  Cordage  Company, 
failure  of,  in  1893,   188 

Navy,  U.  S.,  appropriations 
for,  recommended  by  Re- 
publican Convention,  129; 
urged  by  President  Har- 
rison, 132;  reduced  by 
Congress  of  1892,  176 

Nebeker,  E.  H.,  U.  S.  Treas- 
urer, his  correct  explana- 
tion of  the  gold  outflow 
after  1890,  159,  162 

Nebraska,  carried  by  Demo- 
crats in  1890,  174;  corn- 
crop  failure  of  1894  in,  221 

Nevada,  rich  silver  discover- 
ies in,  during  1873,  36; 
carried  by  Populists  in 
1892,  181 

New  England,  its  Congress- 
men vote  solidly  against 
the  Bland  Silver  Bill,  40 

New  England  Cotton  Yarn 
Company,  troubles  of,  in 
1903,  310 

New  Jersey,  carried  by  Re- 
publicans in  1 88 1 ,  90 

New  York  Central  Railroad, 
shares  of,  bought  by  Union 
Pacific  in  1906,  356 

New  York  City,  protest  of 
merchants  against  gold 
accumulations  in  the  na- 
tional Treasury,  1866,   14; 


404 


Index 


New  York  City — Continued 
Sub-Treasury  at,  ad- 
mitted to  Clearing-house 
membership,  46,  47;  condi- 
tion of  banks  in,  during 
resumption  year,  48,  58; 
its  grain  trade  checked 
by  1879  wheat  corner, 
60;  financiering  of  its  ele- 
vated railways,  63;"  its 
Clearing-house  excludes 
silver,  76-79;  exclusion 
rule  rescinded,  80;  stock 
panic  in,  during  1884,  99, 
100;  during  1890,  158; 
during  1893,  ^^^'  Predic- 
tion that  it  is  displacing 
London  in  financial  su- 
premacy, 283;  enormous 
building  operations  of  1905 
in,  318;  bank  runs  in, 
during  panics  of  1873, 1884, 
1893,  and  1907,  366 

New  York  City  banks,  see 
Banks. 

New  York  State,  party  con- 
ventions of,  during  1878, 
favor  resumption,  44;  Re- 
publican victory  in,  44; 
party  conventions  of,  dur- 
ing 1879,  approve  resump- 
tion, 67;  sweeping  Re- 
publican victory  in,  68; 
Republican  Convention  of 
1882  in,  approves  veto 
of  River  and  Harbor  Bill, 
91 ;  Democrats  elect  gover- 
nor in,  during  1882,  91; 
legislature  investigates  life- 
insurance  companies,  338- 
340;  passes  insurance  re- 
form law,  340,  341 

Northern  Pacific  Railway, 
reorganized  in  1896  after 
bankruptcy,  278;  joins 
Great  Northern  in  buying 
the  Chicago,  Burlington, 
and  Quincy,  296;  Union 
Pacific  tries  to  buy  control 


of,  in  1 90 1,  304;  its  stock 
cornered,  306;  sells  at 
$1000  per  snare,  306;  cor- 
ner relieved,  307 
Northern  Securities  merger, 
effect  of,  333;  admission 
of  its  counsel  regarding 
its  possible  results,  336; 
suit  to  dissolve,  begun  by 
Roosevelt  Administration, 
347 ;  argument  of  attorney- 
general  regarding  its  mono- 
polistic tendencies  347; 
U.  S.  Circuit  Court  decides 
for  dissolution,  347;  Su- 
preme Court  decides 
against  company  on  ap- 
peal,  348;   dissolution   of, 

349 
Notes,    United    States,    see 

Legal  tenders. 
Notes  of  national  banks,  see 

Bank  notes. 
Notes  of  railway  companies, 

issued      in      tight-money 

period       of       1907,     359; 

amount  put  out,  360 

Ohio,  elects  Hayes  Gover- 
nor in  1875,  27;  its  Con- 
gressmen vote  solidly  for 
Bland  Silver  Bill,  40;  Dem- 
ocratic Convention  of  1878 
denounces  Resumption 
Act,  42;  action  of  Republi- 
can Conventions  in,  43; 
carried  by  the  Republi- 
cans, 44;  party  conven- 
tions in,  during  1879,  65, 
66;  carried  by  Republi- 
cans, 68;  Republicans 
hold,  in  1880  and  1881, 
90;  Democrats  carry,  in 
1882,  91;  one  reason  for 
its  vote  against  Bryan  in 
1896, 266 

Oil,  brought  to  market  by 
the  pipe  line,  57;  large  ex- 
ports of,  in  1879,  57;  ad- 


Index 


405 


Oil — Continued 

vance  in  price  of,  during 

1895,  242 
Oregon  Short  Line  Railway, 

used  by  Union  Pacific  to 

buy       Northern       Pacific 

stock,  305 
Overend,     Gumey     &     Co., 

failure  of ,  in  1866,  14 

Panic  of  1866,  in  London, 
14;  its  influence  on  the 
American  markets,  15 

Panic  of  1873  in  New  York, 
events  which  led  up  to,  18; 
good  and  bad  results  of, 
18,  19 

Panic  of  1884  in  New  York, 
its  cause,  98;  its  character, 
98;  its  peculiar  incidents, 
99 ;  protective  measures 
adopted  in,  100 

Panic  of  1890  in  London, 
157;  how  allayed,  158;  its 
influence  on  New  York, 
158 

Panic  of  1893  in  the  United 
States,  outbreak  of,  188; 
corporation  failures  in, 
188;  effect  of,  on  interior 
institutions,  189,  190,  193; 
on  the  city  banks,  190— 
194;  on  the  currency,  195; 
on  foreign  exchange,  193, 
196;  on  Congress,  197;  on 
trade,  201;  on  the  Treas- 
ury, 203 

Panic  of  1907,  predicted 
nearly  two  years  before, 
329.  330;  in  Egypt,  360, 
361;  m  Japan,  361,  362; 
xn  Hamburg,  362;  in  Chili, 
362,  363;  belief  that  an- 
other crisis  could  not  oc- 
cur at  New  York,  363; 
reasons  for  recurrence  in 
1907,  363;  twenty-year  in- 
terval in  recurrence  of, 
364;    early  signs    of,     at 


New  York,  365;  breaks 
out  in  run  on  trust  com- 
panies, 366;  strikes  the 
Stock  Exchange,  372; 
spreads  throughout  the 
country,  373,  374;  phases 
of.  375;  allayed  by  import 
of  gold,  376;  resemblance 
to  1873  panic,  377;  im- 
mediate after-effects  of, 
376,  377;  sequel  in  1908, 
378 
Panics,  minor:  "Northern 
Pacific,"  in  May,  1901, 
306 ;  "rich  men's  panic  "  of 

1903. 311 

Paris  Exposition  of  1889,  its 
alleged  influence  on  Ameri- 
can gold  exports,  160 

Pattison,  Robert  E.,  elected 
Governor  of  Pennsylvania 
in  1882,  92;  in  1890,  173 

Pennsylvania,  Democratic 
Convention  in,  during 
1879,  its  equivocal  stand 
on  the  currency,  66 ;  carried 
by  the  Democrats  in  1882, 
92; in  1890,  17^ 

Pensions,  Garfield  declares  in 
1872  that  maximum  ex- 
penditure for,  has  been 
reached,  89;  enormous  in- 
crease in  appropriations 
for,  during  1882,  89;  Re- 
publican Convention  of 
1888  advises  increase  in, 
129;  President  Harrison 
suggests  enlargement  of, 
132;  political  inducement 
for,  134;  extravagant  ap- 
propriations of  1890  for, 
136;  Pj-esident  Harrison 
alarmed  at  increase  in,  138; 
heavy  increase  in  appro- 
priations for,  by  52d  Con- 
gress, 176 

Philadelphia,  its  banks  issue 
loan  certificates  in  1893, 
19a 


4o6 


Index 


Philadelphia  and  Reading 
Railway  Company.  its 
failure  in  1893,  188;  its 
reckless  financiering,  218; 
reorganization  of,  in  1896, 
277 

Philippine  Islands,  purchased 
from  Spain  after  war  of 
1898,  280;  made  an  issue 
in  1900  election,  291 

Pittsburg,  railway  riots  at,  in 

1877,  34;  its  banks  issue 
loan  certificates  in  1893, 
192 

Platforms,  party:  of  Demo- 
crats in  1868,  declares  for 
repudiation,  16;  of  Repub- 
licans in  1876,  ignores  Re- 
sumption Law,  27;  of 
Western      Democrats      in 

1878,  favor  free  coinage 
and  denounce  Resumption 
Law,  42;  of  Western  Re- 
publicans in  1878,  oppose 
financial  agitation,  43;  of 
Democrats  in  1879,  declare 
for  silver,  66;  of  Republi- 
cans, uphold  specie  pay- 
ments, 67;  of  1880,  ignore 
silver,  69;  of  third  party  in 
1888,  based  on  labor  ques- 
tion, 117;  of  1886  and 
1888,  make  an  issue  of 
trust  question,  118;  of 
Democrats  in  1888,  128;  of 
Republicans,  129,  139;  of 
Republicans  in  1892,  177; 
of  Democrats,  178;  of 
Western  and  Southern 
Democrats,  favor  free  coin- 
age, 179;  of  Populists,  180; 
of  Democrats,  in  1896, 
263;  of  Republicans,  in 
1896,  264 

Populist  party,  organized  in 
1892,  180;  its  radical  plat- 
form, 180;  its  popular 
vote  for  President,  181; 
its  showing  in  Congress  and 


in  the  Electoral  College, 
181;  fuses  with  Democrats 
in  1896  election,  262;  di- 
vided on  Bryan  nomina- 
tion of  1900,  292;  plat- 
forms of  two  factions,  2  92 , 

293 

Price,  Hiram,  U.  S.  Congress- 
man, his  skepticism  over 
resumption,  12 

Prices  of  commodities  {see 
also  Cotton,  Dry-goods, 
Iron,  Silver,  Stock  market, 
Wheat),  high  level  of,  dur- 
ing war  inflation,  9,  10; 
obstacles  presented  by,  to 
resumption,  13;  fall  in, 
after  panic  of  1873,  19; 
decline  in,  early  in  1879, 
51,  52;  violent  advance  of, 
later  in  the  year,  53 ,  56-60 ; 
continued  strength  in,  dur- 
ing 1880,  61;  high  level  of, 
in  1882,  85;  reaction  in,  86; 
renewed  advances  in,  dur- 
ing 1887  and  1889,  115; 
during  1890,  154-156;  de- 
cline in,  during  1893,  200; 
recovery  in,  during  1895, 
242;  low  record  of  half  a 
century  in,  reached  during 
1897,  260;  general  rise  in, 
between  1897  and  1899, 
260;  violently  rapid  ad- 
vance in,  after  1904,  315; 
manipulated  in  1906  by 
Trusts,  333;  fall  in,  after 
1907  panic,  378,  379 

Promoters,  their  activity 
during  1899  in  American 
industry,  287;  reckless  pro- 
jects or,  during  1901,  302; 
caught  in  a  trap  by  falling 
market,  308;  the  "un- 
digested securities  "  epi- 
sode of  1903, 309 

"Prosperity  League, "  its  sin- 
gular campaign  of  igo8. 
378 


Index 


407 


Protection,  see  Tariff. 
Public  Credit  Act  of  1869,  17 
Public  lands,  enormous  sales 
of,  in  1888,  115 


Railway  Rate  Law  of  1906, 
passage  urged  by  Presi- 
dent Roosevelt,  351; 
passed  in  Congress,  352; 
overwhelming  majority  for, 
352;  terms  of  and  penal- 
ties prescribed  by,  352; 
constitutional  arguments 
regarding,  353 ;  theory  that 
it  caused  the  panic  of  1907, 

353 
Railways  of  the  United 
States,  their  expansion 
after  the  Civil  War,  2; 
shares  in,  sold  by  London 
in  1879,  52;  speculation  in 
securities  of,  during  1880, 

61,  62 ;  systems  of,  built  up, 

62,  63 ;  reckless  financiering 
of,  in  1880,  62-64;  enor- 
mous earnings  of,  65;  pro- 
fits of,  affected  by  1881 
crop  failure,  84;  construc- 
tion of,  in  1882,  decreases, 
87;  financial  embarrass- 
ment among,  in  1884,  98; 
construction  of,  reaches  its 
maximum  in  1887,  115; 
labor  troubles  on,  during 
1886  and  1888,  116;  pres- 
idents of,  give  their  word 
of  honor  to  maintain  rates, 
119;  Populist  Convention 
declares  for  government 
ownership  of,  180;  failures 
among,  in  1893,  188,  194, 
218;  bad  financiering  of, 
218,  219;  decreased  earn- 
ings of,  in  1894,  219;  labor 
uprising  on,  220;  their 
traffic  blockaded  by  strik- 
ers at  Chicago,  220;  finan- 
cial wreck  of,  left  by  the 


1893  panic,  276;  condition 
in  1895  of  bankrupt  pro- 
perties, 276;  reorganiza- 
tion of,  277;  earnings  of,  in 
1900,  279;  issues  of  new 
securities  after  1898,  290; 
enormous  purchase  of 
stock  of,  in  1901,  295;  the 
"Burlington  deal,"  296; 
purchase  of,  through  colla- 
teral trust  bonds,  296, 
contest  over  Northern  Pa- 
cific in  1 90 1,  304;  mil- 
lionaire speculation  of  1905 
in,  327;  combination  into 
four  great  systems,  333; 
Harriman's  combinations 
of,  335;  Interstate  Com- 
merce Commission  on,  335; 
application  of  Anti-Trust 
Law  of  1890  to,  344-346; 
rate  discrimination  charged 
by  Roosevelt  Administra- 
tion, 350;  legislation  of 
1906  regarding,  352 ;  feeling 
as  to  new  law,  352,  353; 
enormous  borrowing  plans 
of,  in  1906,  359;  bonds 
fail  to  find  a  market,  359; 
very  large  issue  of  tempo- 
rary notes,  360;  decline 
in  traffic  after  1907  panic, 

377 

Railways,  foreign,  influence 
of  their  extension  on 
world's  wheat  product,  4, 
122;  active  construction  of, 
before  1878,  in  Russia,  4; 
in  Austria,  5;  extension 
prior  to  1888,  in  India,  122; 
in  Argentine  Republic,  122 

Republican  party,  opposes 
repudiation  issue  in  1868, 
16;  wins  the  Presidential 
election,  16;  defeated  in 
the  Congressional  elections 
of  1874,  20;  its  condition 
after  the  panic,  20;  unani- 
mous vote  of  its  Congress- 


4o8 


Index 


Republican  party — Continued 
men  for  Resumption  Act, 
2 1 ;  ignores  the  Act  in  its 
platform  of  1876,  27;  its 
minority  in  the  House  of 
1877,  34;  its  failure  to 
support  the  Hayes  Ad- 
ministration in  Congress, 
40;  its  platforms  of  1878 
favor  the  Adminstration, 
43;  its  victory  in  1879,  68; 
its  platform  of  1880,  69; 
disputes  over  Presidential 
nominations,  70 ;  elects 
Garfield  President,  72;  op- 
poses tariff  revision  in  1 882 , 
88;  its  Congressmen  pass 
River  and  Harbor  Bill  over 
Arthur's  veto,  90;  de- 
feated in  the  1882  elec- 
tions, 91,  92;  in  Presiden- 
tial election  of  1884,  102; 
its  platform  of  1888,  129; 
elects  Harrison  President, 
130;  its  attitude  on  the 
tariff,  131;  on  silver  138, 
139;  its  division  on  high- 
tariff  legislation  in  1889, 
141,  142,  148;  its  severe 
defeat  in  1890  elections, 
173,  174;  ignores  Silver- 
Purchase  Act  in  its  con- 
vention of  1892,  177;  de- 
feated in  the  Presidential 
election,  181 ;  favors  repeal 
of  Silver-Purchase  Law, 
197;  carries  repeal  in  the 
Senate,  199;  regains  con- 
trol of  Congress,  249;  nom- 
inates McKinley  in  1896, 
263;  changes  issue  from 
tariff  to  currency,  264; 
carries  election,  266;  raises 
duties  in  1897,  269;  its 
victory  of  1904,  311;  of 
1908,  37-9 

Resumption  of  specie  pay- 
ments, planned  by  Hugh 
McCuUoch,      10;     pledged 


by  Congress  in  1865,  11; 
Sherman  predicts  that  it 
will  come  automatically, 
12;  obstacles  to,  pointed 
out  by  McCuUoch,  13; 
promised  again  by  Con- 
gress, 17;  the  promise 
broken,  17,  18;  Resump- 
tion Act  passed,  1875,  21; 
its  provisions,  21,  23,  24, 
172;  difficulties  in  the  way 
of,  25,  26;  trade  conditions 
favorable  to,  26;  prepara- 
tions for,  29-33;  Con- 
gressional opposition  to, 
34,  35,  39;  repeal  of  law 
proposed,  35;  attack  on, 
supported  by  many  Re- 
publicans, 40;  repeal  act 
fails  in  Congress,  4 1 ;  Ad- 
ministration's policy  of, 
denounced  by  opposition 
State  conventions,  42;  en- 
dorsed by  Eastern  Re- 
publican conventions,  43 ; 
by  Eastern  Democratic 
conventions,  44;  Sherman's 
final  arrangements  for,  44- 
46;  gold  held  for  purposes 
of,  45;  specie  payments  re- 
sumed, 47;  problem  of 
maintaining,  48-51;  limi- 
tations of  the  law  for,  50; 
effect  of,  on  the  markets, 
52;  precarious  outlook  of, 
in  1879,  53;  satisfactory 
outcome  of,  56 

Revenue,  public,  see  Cus- 
toms revenue.  Internal 
revenue,  and  Surplus 
revenue. 

River  and  harbor  expendi- 
ture, heavy  increase  in, 
during  1882,  89;  bill  for, 
vetoed  by  President  Ar- 
thur, 90;  passed  over  veto, 
90;  effect  of,  on  1882 
elections,  91;  Republican 
Convention    of     1888    re- 


Index 


409 


Riverand  Harbcw — Continued 
commends,  129;  President 
Harrison  approves,  132; 
dangers  of,  133;  increase  of, 
in  1892, 176 

Roosevelt,  Theodore,  Presi- 
dent of  the  United  States, 
his  Presidential  plurality 
in  1904,  311;  his  remarks 
on  "muck-raking,"  340; 
his  political  antecedents, 
342 ;  succeeds  to  Presidency 
on  McKinley's  death,  342; 
his  first  declaration  of  pol- 
icy, 342,  343;  warning  re- 
garding corporations,  343; 
mvokes  Anti-Trust  Law 
against  railway  combina- 
tions, 344;  announces  suit 
against  Standard  Oil  Com- 
pany, 350;  urges  Railway 
Kate  Law  of  1906,  351; 
effects  of  his  activity 
against  corporations,  353; 
the  argument  that  his 
policies  caused  the  panic 
of  1907,  353.  354;  popular 
support  of,  353 

Rothschilds,  expect  gold  ex- 
ports from  U.  S.  m  1879, 
52 ;  contract  of,  with  Treas- 
ury in  1895,  236 

Rozenraad,  Cornelis,  on  trade 
of  1906  and  strain  on 
world's  money  market,  324 

Russell,  William  E.,  elected 
Governor  of  Massachusetts 
in  1890,  173 

Russia,  extension  of  its  rail- 
way system,  before  1878,  4; 
crop  failure  of  1879  in,  55; 
crops  of  1891  in,  failure 
of,  164;  takes  wheat  mar- 
ket of  1895  away  from  U. 
S.,  246;  crop  failure  of 
1897  in,  270;  war  with 
Japan,  320;  raises  war 
loans  in  Paris,  320,  321; 
its  outstanding  loans,  320 


Ryan,  Thomas  F.,  buys 
Equitable  Life  control 
from  James  H.  Hyde, 
341;  quarrel  with  Hani- 
man,  341 


San  Francisco,  earthquake 
of  1906  at,  financial  effect, 

329 
Schiff,  Jacob  H.,  prediction 
of  1906  regarding  coming 

Eanic,  329 
urz,    Carl,    opposes    Mc- 
Kinley  on  imperialism  is- 
sue, 292 

Securities,  issue  by  industrial 
companies,  in  boom  of 
1901,285;  by  railways,  290; 
forced  sales  of  new  in- 
dustrials in,  1903,  308; 
very  large  issues  of  1906  in 
Europe,  323 

Seigniorage  on  silver  coinage, 
bill  of  1894  to  coin,  230 

Senate,  U.  S.,  see  Congress. 

Seymour,  Horatio,  Demo- 
cratic nominee  for  Presi- 
dent in  1868,  16;  rejects 
repudiation  platform,  16 

Shaw,  Leslie  M.,  Secretary 
U.  S.  Treasury,  action  of 
1906  to  assist  New  York 
banks,  357 

Shepard,  Edward  M.,  op- 
poses McKinley  in  1900 
on  imperialism  issue,   292 

Sherman,  John,  Congressman 
and  Secretary  of  the  Treas- 
ury, his  opposition  to 
McCuUoch  contra  ct  ion 
plan,  12;  his  belief  in 
automatic  resumption,  12; 
his  judgment  that  money 
supply  of  1866  was  not 
excessive,  13;  defers  to 
public  opinion  on  the  legal 
tenders,  15;  draws  up  Re- 
sumption Act,  31;  defines 


4IO 


Index 


Sherman,  John — Continued 
powers  of  the  Act,  24,  29; 
appointed  Secretary  of  the 
Treasury,  27;  his  faults  as 
legislator,  27,  28;  his  con- 
flicting public  utterances, 
28;  his  good  qualities  as 
administrator,  29;  declares 
government  bonds  pay- 
able in  gold,  29,  39;  his 
skill  in  negotiation,  29-31 ; 
his  relations  with  the 
banks,  32,33;  assures  bond- 
subscribers  that  bonds  will 
be  paid  in  gold,  39;  his 
timid  treatment  of  Bland 
Bill,  41,  42;  his  curious 
letter  to  Stanley  Matthews, 
42;  does  not  approve  veto 
of  Bland  Bill,  42 ;  his  view 
of  proper  amount  of  Treas- 
ury gold  reserve,  45,  166; 
his  final  arrangement  for 
resumption,  46,  47;  his 
untenable  theory  regarding 
redeemed  legal  tenders,  50; 
his  uneasiness  over  Treas- 
ixry's  situation  in  1879, 
53;  orders  use  of  gold  in 
ordinary  Treasury  pay- 
ments, 59;  his  remarks 
on  the  grain  harvest  and 
prosperity,  67;  his  candi- 
dacy for  Presidential  nom- 
ination, 70;  reasons  for  its 
failure,  70;  declares  the 
legal  tenders  a  safe  cur- 
rency, 72;  his  changing 
views  on  silver,  73,  74; 
his  pessimism  in  1880, 
74;  his  expedient  to  cir- 
culate the  silver  dollars, 
81,  82;  his  opinion  regard- 
ing the  silver  Senators, 
141;  alleges  that  Silver- 
Purchase  Act  was  neces- 
sary to  prevent  free  coin- 
age, 147,  148;  frames  com- 
promise     Silver-Ptxrchase 


Bill,  149;  his  mistaken 
predictions  regarding  re- 
venue and  legal  tenders, 
152;  introduces  bill  to  re- 
peal Silver-Purchase  Act, 
174;  denies  right  of  Treas- 
ury to  use  gold  reserve 
for  ordinary  payments, 
205;  his  unfounded  asser- 
tion that  deficit  was  wholly 
caused  by  Wilson  Tariff, 
222;  his  introduction  of 
Anti-Trust  Law  of  1890, 
344 ;  his  view  of  its  applica- 
tion, 344.  See  also  Pre- 
face. 

Shipping  Trust,  organized 
in  190 1,  302;  alarm  of  Eng- 
land over  purchase  of 
steamship  lines,  302;  com- 
ment on  its  extravagant 
purchases,  303;  English- 
men get  control  of  it,  303; 
use  of  life  insurance  funds 
to  finance,  339 

Shiras,  George,  Associate  Jus- 
tice U.  S.  Supreme  Court, 
his  vote  on  the  income- 
tax  decision,  229 

Silver,  question  of,  prior  to 
1865,  6;  increase  in  Ameri- 
can production  of,  7 ;  Presi- 
dent Hayes  favors  main- 
taining, as  precious  metal, 
7 ;  free  coinage  of,  voted  by 
House  of  Representatives, 
in  1 8  7  7 ,  3  5 ;  its  demonetiza- 
tion, 35;  Bonanza  discov- 
eries of,  in  Nevada,  36,  37 ; 
debate  on  bill  for  free 
coinage  of,  37,  38;  govern- 
ment bonds  declared  pay- 
able in,  by  Congress,  38, 
39;  Western  conventions 
demand  free  coinage  of, 
42 ;  not  favored  in  national 
conventions  of  1880,  69; 
opinions  of  Hayes  and 
Sherman  on,  73 ;  dollars  not 


Index 


411 


Silver — Continued 

a  popular  form  of  money, 
75;  rejected  by  interior 
trade,  75;  large  use  of, 
in  payment  of  public  re- 
venue, 76 ;  New  York  Clear- 
ing-house rejects,  76,  77; 
reasons  for  rejection  of, 
78,  79;  increase  in  produc- 
tion of,  78;  price  of,  rises 
in  1878,  then  falls,  78; 
decreased  shipments  to 
Orient,  78 ;  used  for  interior 
remittances,  81 ;  exchanged 
for  certificates,  82;  gold 
paid  for,  82 ;  trouble  with, 
renewed,  96;  Folger's  opin- 
ion as  to  dangers  of,  96; 
effect  of  compulsory  coin- 
age of,  after  1881,  97;  ac- 
cumulates in  Treasury,  97; 
revenue  payments  made 
in,  97;  Acton  suggests 
forced  use  of,  in  Clearing- 
house payments,  98;  effect 
of  coinage  of,  on  national 
finances,  as  regarded  by 
McCuUoch,  103;  by  Cleve- 
land, 103;  fractional  coin 
pledged  with  the  banks  in 
1885  for  gold,  104,  105; 
Cleveland  Administra- 
tion's plans  to  circulate, 
105-107;  certificates  for, 
issued  in  small  denomina- 
tions, 108;  takes  the  place 
of  bank  notes  in  circula- 
tion, 1 1 1 ;  Treasury  surplus 
of,  decreases  after  1886, 
112;  question  of,  not  a 
political  issue  in  1888,  138, 
139;  advocates  of,  in  Con- 
gress, 141;  their  power 
over  legislation,  141,  147; 
Secretary  Windom's  plan 
for,  142-145;  increased 
production  of,  after  1890, 
146;  legislation  for,  in 
1890,  147-149;  temporary 


advance  in  price  of,  1 53 ; 
renewed  decline  in,  154; 
gold  paid  to  Treasury  for, 
m  189 1,  164;  free  coinage 
of,  voted  in  1882  by 
Senate,  174;  blockaded  in 
House,  1 74 ;  party  declara- 
tions on,  in  1892,  177-180; 
rumor  of  its  intended  use 
to  redeem  legal  tenders, 
185,  186;  heavy  decline  in, 
on  suspension  of  Indian 
free  coinage,  200;  Con- 
gress votes  to  coin  "seig- 
niorage" of,  230;  Presi- 
dent vetoes  bill,  230;  Dem- 
ocratic party  declares  for 
free  coinage  of,  in  1896, 
263 ;  in  1900, 291 

Silver-Purchase  Law  of 
1890,  proposed  by  Secre- 
tary Windom,  139;  politi- 
cal origin  of,  141,  148; 
confusion  of  ideas  regard- 
ing, 142-145;  modified  by 
Congress,  147;  altered  in 
conference  committee,  149; 
Congressional  opinion  on, 
150;  fails  to  keep  up  price 
01  silver,  153,  154;  Presi- 
dent Harrison  defends,  1 54 ; 
Secretary  Windom  de- 
fends, 154;  its  influence 
on  cvirrency  in  1890,  155, 
159;  party  declarations 
regarding,  in  1892,  177, 
178;  Cleveland  Administra- 
tion proposes  repeal  of, 
184,  197;  its  provisions 
tested,  185,  186;  Republi- 
cans favor  repeal  of,  197; 
struggle  over  bill  to  repeal, 
197-199;  Congress  repeals, 
199;  eflfect  of  repeal  of,  on 
markets,  199,  200 

Simmons,  J.  Edward,  speech 
to  Clearing-house  on  trust 
company  reserves,  369 

Sinking  fund  against  U.   S. 


412 


Index 


Sinking  Fund — Continued 
public  debt,  annual  re- 
quirement for,  125,  137; 
payments  on,  abandoned 
Dj  Harrison  Administra- 
tion, 137 

South  Africa,  see  Transvaal. 

South  Carolina,  Democratic 
Convention  of  1892  de- 
nounces Cleveland,  179; 
demands  free  coinage, 
179 

Spain,  United  States  de- 
clares war  on,  279;  how 
money  for  conflict  raised, 
279 ;  payment  of  indemnity 
to, 280 

Spaulding,  E.  G.,  U.  S. 
Congressman,  regards  the, 
legal  tenders  as  a  tempo- 
rary currency,  8 

Specie  payments,  see  Legal 
tenders  and    Resumption. 

Speculation,  of  1879  and 
1880,  61;  of  1890,  153,  155; 
of  1895,  244;  of  1901,  294, 
300;  of  1905,  in  Europe  and 
America,  325,  326;  various 
forms  of,  in  1906,  332; 
not  checked  by  Railway 
Rate  Law,  354;  in  Union 
Pacific  stock,  during  1906, 
357;  weakened  by  with- 
drawal of  foreign  capital, 
358;  collapse  of,  in  1907, 
360;  resumed  in  1908  on 
New  York  Stock  Ex- 
change, 379 

Spooner,  John  C,  Senate 
speech  of  1906  on  Railway 
Rate  Bill,  353 

Standard  Oil,  capitalists  iden- 
tified with,  their  part  in 
Northern  Pacific  comer, 
305;  suit  against  company 
by  Roosevelt  Administra- 
tion, 350;  jury  finds 
against,  350;  $29,240,000 
fine  imposed  on,  351;  judg- 


ment and  fine  set  aside  by 
higher  court,  351 

Steel  trade,  combinations  in, 
during  1899,  287;  artificial 
maintenance  of  prices  in, 
after  1907  panic,  378,  379 

Steel  Trust,  organized  by 
J.  P.  Morgan  in  1901,  297; 
its  constituent  companies, 
298 ;  scheme  for  floating  its 
securities,  299;  initial  price 
of  its  stock,  300;  reduces  its 
dividends,  310;  value  on 
market  cut  in  two,  310; 
tries  to  turn  $200,000,000 
stock  into  bonds,  334; 
life  insurance  funds  used 
for  financing,  339;  op- 
poses reduction  of  steel 
prices  after  panic  of  1907, 
378,  379;  reduces  prices 
in  1908,  379 

Stevens,  Thaddeus,  U.  S. 
Congressman,  his  opinion 
on  contraction  of  the  legal 
tenders,  12 

Stock  Exchange,  New  York, 
excitementon,  during  1884, 
100;  arranges  for  silver 
speculation  in  1890,  15;^; 
closing  of,  during  panic 
of  1893,  discussed,  194; 
manipulation  of  new  steel 
shares  of  1901  on,  299; 
unprecedented  trading  on, 
301;  declares  holiday  to 
give  a  rest  to  brokers, 
301;  technical  insolvency 
in,  during  Northern  Pa- 
cific panic,  307;  Rus- 
sia lists  its  bonds  on,  321; 
enormous  sums  raised 
abroad  for  speculation  of 

1906  on,    356;    panic    of 

1907  on,  372;  appeal  to 
banks  for  relief,  372 

Stock  market,  of  1879,  61 ;  of 
1880,  61;  used  by  Jay 
Gould,  63,  64;  demoraliza- 


Index 


413 


Stock-market — Continued 
tion  in,  during  1884  at 
New  York,  100;  of  i8po, 
at  New  York,  speculation 
in  silver,  153;  influenced 
by  the  paper  money  infla- 
tion, 155;  of  1890,  at 
London,  156,  157;  at  New 
York,  breaks  during  1896 
campaign,  266;  rise  and 
reaction  after  Bryan  de- 
feat, 267;  prices  of  new 
industrial  snares  of  1899 
on,  288;  excited  specula- 
tion of  1901  in,  29s,  300; 
collapse  in,  during  North- 
em  Pacific  comer,  306; 
millionaire  speculation  of 
1905  on,  327;  in  1906, 
^56;  forced  liquidation  on, 
in  March  and  August,  1907, 
360;  crisis  of  October  on, 
372;  speculation  resumed 
on,  in  1908,  379 

Strikes,     of      railway     em- 

{)loyees  in  1886,  116;  of 
aborers,  for  an  eight-hour 
day,  1x6;  their  influence 
on  politics  in  1888,  117; 
of  coal-miners  and  rail- 
way employees,  in  1894, 
220;  why  escaped,  in  1906, 

Sugar,  import  duty  on,  its 
great  productiveness,  134; 
removed  by  McKinley 
Tariff  Act,  134;  revenue 
from,  in  1889,  134;  in  1892, 
134;  in  1895,  226;  partly 
restored  by  Senate's  Tariff 
Bill  of  1894,  225,  226 

Sumner,  Charles,  U.  S.  Sena- 
tor, regards  the  legal  ten- 
ders as  a  temporary  cur- 
rency, 8 

Supreme  Court  of  the  United 
States,  declares  the  Legal- 
Tender  Act  constitutional, 
20;     declares     rents     and 


municipal  bonds  exempt 
from  income-tax,  228-;  de- 
clares income-tax  of  1894 
unconstitutional,  229; 
questions  counsel  regard- 
ing Northern  Securities 
merger,  336;  applies  Anti- 
Trust  Law  of  1890  to 
railways  in  1897,  345,  346; 
decides  Northern  Securi- 
ties suit  against  the  rail- 
ways, 348;  different  po- 
sitions of  the  justices, 
348 

Surplus  revenue  of  U.  S. 
government,  in  1882,  cause 
of,  87;  its  political  aspects, 
88;  continues  large  after 
tariff  of  1883,  95;  applied 
to  bond  redemptions,  109, 
III,  112,  125,  126;  heavy 
increase  in,  after  1886, 
113;  causes  of  increase  in, 
114;  absorbs  one  fourth  of 
the  circulating  medium, 
123;  deposited  in  1888  with 
the  banks,  124;  becomes  a 
menace  to  trade,  126;  the 
precedent  of  1836,  127; 
made  a  political  issue  in 
1888,  128,  129;  Democratic 
plan  to  reduce,  128;  Re- 
publican plan,  129,  130, 
132,  134,  135;  disappear- 
ance of,  in  1891,  137 

Syndicates,  bankers',  formed 
in  1895  to  protect  Treas- 
ury reserve,  235;  organ- 
ized in  1896  to  guard 
market  against  election 
crisis,  266;  used  in  railway 
reorganizations,  277,  278; 
employment  for  industrial 
amalgamations,  286;  form- 
ed in  1901  to  float  Steel 
Trust  shares,  299;  profit 
of  200  per  cent,  distributed, 
300;  forced  sale  of  securi- 
ties in  1903  by,  308 


414 


Index 


Taft,  William  H.,  elected 
President  in  1908,  379 

Tanner,  James  A.,  Com- 
missioner of  Pensions,  his 
remark  about  the  surplus, 
137;  induced  to  resign 
office,  138 

Tarifif,  import,  suggested  as  a 
help  to  resumption,  1 3 ; 
Arthur  Administration 
urges  reduction  in,  88; 
elections  of  1882  declare  for 
revision  of,  92;  plan  for 
reduction  in,  93;  Congress 
opposes  reduction  of,  93 ; 
evils  of  wholesale  changes 
in,  94;  alterations  in,  have 
often  preceded  financial 
disturbance,  94;  law  of 
1883,  its  character,  95;  its 
effect  on  revenue,  95,  96; 
large  receipts  under,  113; 
bill  of  1887,  passed  by- 
House  and  killed  by  Sen- 
ate, 125;  reform  of,  de- 
manded by  Democratic 
party  in  1888,  129;  Re- 
publicans demand  increase 
m  rates  of,  129;  Republican 
policy  regarding,  131,  132; 
McKinley  Bill  passed,  134; 
rates  under,  134;  reduction 

,  in  yield  of,  135;  relations 
of,  to  silver  legislation  of 
1890,  141,  142,  148,  151; 
bills  to  reduce,  pass  House 
of  Representatives  in  1892, 
175;  defeated  in  Senate, 
175;  contest  over,  in  1892 
elections,  177;  action  on, 
by  Congress  of  1894,  neces- 
sary, 222;  mistakes  in 
plans  for,  by  Congress,  224, 
225;  erroneous  estimates 
on,  225-327;  conflict  over, 
between  House  and  Senate, 
325,  326;  President  Cleve- 
land refuses  to  sign  bill, 
337;  failure  of,  to  produce 


sufficient  revenue,  227; 
failure  of  Republicans  in 
1896  to  make  campaign  is- 
sue of,  263;  Dingley  act 
raises  duties  in  1897,  269; 
failure  to  remove  deficit, 
269;  its  relation  to  subse- 
quent trade  recovery, 
270 

Tariff  commission  of  1882, 
its  protectionist  member- 
ship, 92;  recommends 
lower  duties,  93 ;  its  plan 
altered  by  Congress,  93 

Teller,  Henry  M.,  U.  S.  Sena- 
tor, declares  that  free- 
coinage  bill  could  not  have 
passed  in  1890,  148 

Tilden,  Samuel  J.,  claim  that 
he  was  elected  President  in 
1876,  34;  his  plurality  on 
the  popular  vote,  7 1 

Trade,  American,  expansion 
after  the  Civil  War,  2,  3; 
depression  in  1877,  34;  un- 
favorable outlook  for,  at 
resumption,  51;  great  re- 
covery in,  57;  its  good 
condition  during  1880,  60, 
83;  reaction  in,  after  1881, 
84,  85,  96,97 ;  depression  in, 
during  1884,  98;  renewed 
activity  of ,  after  1885,  114, 
1x5;  in  1890,  154,  158; 
stagnation  of,  after  panic 
of  1893,  201;  its  dis- 
couraging condition  in 
1896,  262;  its  brief  re- 
covery after  election,  267; 
returning  depression,  268; 
revival  in  1898,  272;  great 
prosperity  of  1901  in,  285; 
reaction  of  1900  in,  290; 
depression  in  1903,  308; 
extreme  depression  in, 
after  1907  panic,  377,  378; 
wages  and  prices  reduced, 
378,  379;  illusions  of  1908 
in,  378 


Index 


415 


Trade,  foreiwi,  see  Export 
trade  and  Import  trade 

Transvaal,  gold  discoveries 
in,  243 ;  large  gold  produc- 
tion in,  after  1897,  260; 
declares  war  on  England, 
280;  shuts  off  gold  exports, 
281;  shrinkage  in  gold 
production  during  war, 
313;  resumption  in  1905  of 
full  output,  313 

Treasury,  U.  S.,  granted 
power  to  contract  the  legal 
tenders,  9,  11;  accumula- 
tion of  gold  in,  opposed 
by  business  men,  14;  con- 
traction powers  of,  re- 
voked, 15,  16;  reissues 
retired  legal  tenders  in 
1873,  20;  powers  under 
Resumption  Act,  23-^6; 
its  relation  to  the  banks  in 
1 8  7  8,  3  3 ;  its  gold  fund  at  re- 
sumption, 45;  its  resump- 
tion arrangements  with  the 
banks,  45,  46;  admitted  to 
New  York  Clearing-house, 
47;  outlook  for  its  reserve 
fund,  48 ;  protective  powers 
denied  it,  49-51 ;  gold  with- 
drawn from,  53 ;  rise  in  its 
gold  reserve,  59;  pays  out 
gold  on  ordinary  disburse- 
ments, 59;  large  silver 
payments  made  to,  76;  in- 
crease of  silver  surplus  of, 
77;  its  relations  with  the 
New  York  Clearing-house 
regarding  silver,  76-78,  80; 
circulates  its  silver  cur- 
rency, 81-83;  silver  again 
accumulates  in,  96,  97; 
begins  to  pay  silver  at 
New  York  Clearing-house, 
103;  borrows  gold  from 
New  York  banks  in  1885, 
104,  105;  substitutes  silver 
certificates  for  small  legal 
tenders  in  the  circulation, 


105,  106;  for  national  bank 
notes,  1 10,  1 1 1 ;  buys  bonds 
with  its  surplus,  1 1 1 ;  circu- 
lates the  silver  certificates, 
III,  112;  trade  conditions 
of  1888  favorable  to,  123; 
enormous  increase  in  its 
surplus,  123;  deposits  sur- 
plus with  the  banks,  124; 
its  wholesale  redemption  of 
bonds  at  a  premium,  125, 
126;  its  experience  in  1837, 
128;  effects  of  laws  of  1890 
on,  137;  rapid  fall  in  its 
surplus,  137;  abandons  pur- 
chases for  the  sinking- 
fund,  137;  monthly  de- 
ficits of,  begin  in  1891, 
138;  effect  of  Silver- Pur- 
chase Act  on,  151;  throws 
enormous  sums  of  money 
into  circulation,  155,  159; 
heavy  gold  disbursements 
by,  in  1890  and  1891,  162; 
fall  in  its  gold  reserve,  163; 
receives  gold  in  exchange 
for  legal  tenders,  164; 
its  precarious  situation  in 

1892,  166;  its  gold  reserve, 
how  established  and  pre- 
scribed 166,  167;  gold  pay- 
ments to,  in  revenue,  de- 
crease, 168,  169;  ceases  to 
use  gold  in  its  own  dis- 
bursements, 170;  legal  ten- 
ders presented  to,  for  re- 
demption, 172,  173;  dan- 
gerous    condition     of,    in 

1893,  182,  1 84;  prepares  for 
a  bond-issue,  183;  borrows 
gold  from  New  York  banks, 
183-185;  suspends  issue  of 
gold  certificates,  185;  ru- 
mors as  to  its  redemption 
plans,  185,  186;  effect  of 
panic  on,  203;  large  gold 
receipts  by,  203;  pays  out 
its  gold  resen/e  in  ordinary 
disbursements,  204;  its 


4i!^ 


Index 


Treasury — Continued 

right  to. do  so  questioned, 
205;  its  general  surplus 
impaired,  206,  207,  209; 
Carlisle's  plans  of  relief 
for,  208,  209;  bond-issues 
for,  during  1 894,  2 1 0-2 1 4 ; 
humiliating  position  of, 
214;  gold  receipts  by,  for 
bonds,  215;  gold  with- 
drawn from,  by  bond- 
subscribers,  215;  move- 
ment of  its  reserve,  216; 
temporary  increase  in  re- 
venues of,  in  1894,  230; 
deficit  begins  again,  230; 
gold  borrowed  for,  from 
banks,  231;  second  loan 
negotiated,  23 1 ;  collapse 
of  its  gold  reserve,  232; 
syndicate  of  1895  under- 
takes to  protect,  236,  237; 
gold  reserve  of,  restored, 
241;  renewed  outflow  of 
gold  from,  248;  final  loan 
of,  250;  increase  of  gold 
in,  253;  provisions  of  1900 
to  protect  gold  reserve  of, 
254;  rapid  increase  of  gold 
reserve  in  1897  and  1898, 
272;  assists  New  York 
banks  to  procure  foreign 
gold,  357;  deposits  public 
funds  with  banks  in  panic 
of  1907,  371;  abortive  at- 
tempt to  relieve  panic 
through   bond   issues,  376 

Treasury,  Secretaries  of, 
Hugh  McCulloch  (1865- 
69,  1884-85),  10,  103; 
John  Sherman  (1877-81), 
27  ,•  Charles  J.  Folger  (1881- 

I  82),  88;  Daniel  Manning 
(1885-87),  no;  Charles  S. 
Fairchild  (1887-89),  123; 
William  Windom  (1889- 
91),  140;  Charles  Foster 
(1891-93),  169;  John  G. 
Owlisle     (1893-97),     185; 


Leslie  M.  Shaw  (1902- 
1907).  357;  George  B. 
Cortelyou  (1907-1909),  371 

Trust  companies,  their  use 
by  life  insurance  com- 
panies in  1903  to  evade 
the  law,  338;  enormous 
insurance  deposits  in,  338; 
run  of  depositors  on,  in 
1907,  366;  nature  of  their 
busmess,  367;  reasons  for 
imperfect  law  regarding, 
367;  their  entry  into  gen^ 
eral  deposit  banking,  367, 
368;  great  increase  in  num- 
ber and  resources,  after 
1899,  368;  their  inadequate 
reserves,  368;  New  York 
Clearing-house  insists  on 
larger  cash  holdings  by, 
369;  trust  companies  re- 
fuse to  yield,  369;  danger- 
ous position  created  by 
rupture  with  banks,  369; 
unprecedented  duration  of 
run  of  1907  on,  370,  ^71, 
372;  failures  of,  372;  how 
run  of  depositors  was 
checked,  372 

Trusts,  industrial,  their  sud- 
den apmearance  in  the 
United  States,  118;  magni- 
tude of  their  operations, 
118;  denounced  in  the 
political  platforms,  118; 
mfluenced  by  trade  com- 
petition, 118,  119;-  move- 
ment of  incorporation  re- 
sumed, 286;  methods  of 
organizing,in  booms  of  1899 
and  1 90 1,  286;  smaller 
combinations  a  m  a  1  g  a  - 
mated  into  larger  combina- 
tions, 287;  enormous  in- 
corporations during  1899, 
288;  the  billion-dollar  steel 
amalgamation,  297 ;  the 
s  h  i  p  p  i  n  g  combination, 
302;  financial  troubles  of 


Index 


417 


Trusts — Continued 

1903  in,  309;  influence  of, 
on  prices  in  1906,  333; 
economic  apology  for,  333 

"  Underwritings, "  see  Syn- 
dicates. 

"Undigested  securities,"  308 

Union  Pacific  Railway, 
Gould's  influence  on,  63; 
dishonest  amalgamation  of, 
with  the  Kansas  Pacific, 
63,  64;  reorganized  in 
1897,  277;  refused  parti- 
cipation in  Burlington  and 
Quincy  purchase,  304 ;  uses 
its  credit  to  buy  Northern 
Pacific  stock,  305 ;  its  enor- 
mous purchases  of  other 
railway  shares,  335,  356; 
how  purchase-money  was 
obtained,  356;  dividend 
increased  to  10  per  cent., 
357;  violent  speculation  of 
1906  in  stock  of,  357 

United  States  Steel  Corpora- 
tion, see  Steel  Trust. 

Valparaiso,     speculation     of 

1905  in,   326;  earthquake 

of  1906,  329 
Vanderbilt,  William  H.,  his 

prediction  of  high  prices  in 

1882,  86 
"Venezuela  message  "of  1895, 

Vest,  George  G.,U.S.  Sena- 
tor, speech  on  Anti-Trust 
Bill  of  1890,  344 

Veto  of  Inflation  Bill,  by 
President  Grant,  20;  of  3^ 
per  cent.  Refunding  Bill, 
by  President  Hayes,  32; 
01  Bland  Silver-Coinage 
Bill,  by  President  Hayes, 
41;  of  River  and  Harbor 
Bill,  by  President  Arthur, 
90;    of    Seigniorage    Bill, 

•7  _ 


by  President  Cleveland, 
230 

Von  Mauthner,  manager  Aus- 
trian bond  syndicate  of 
189a.,  describes  Austrian 
gold  operations,  161 

Voorhees,  Daniel  W.,  U.  S. 
Senator,  denounces  foreign 
bond  investors,  39;  his 
indifference  to  Treasury's 
situation  in  1894,  210; 
notified  by  Carlisle  of  bond- 
issue,  210 

Wabash  railway  system.  Jay 
Gould's    influence    on,    63 

Wages,  great  rise  of  1906  and 
1907  in,  319 

Wallace,  W.  A.,U.  S.  Senator, 
opposes  Hayes  Administra- 
tion's policy,  43 

War,  Civil,  in  United  States, 
2;  between  United  States 
and  Spain,  279;  between 
England  and  Transvaal 
Republic,  280;  cost  of,  282 ; 
between  Russia  and  Japan, 
320 

Warner,  A.  J.,  Cleveland's 
letter  to,  on  silver,  103 

Weaver,  James  B.,  third- 
party  candidate  for  Presi- 
dent in  1880  and  1892, 181 ; 
his  vote  in  1892,  181 

Western  Union  Telegraph 
Company,  Gould's  opera- 
tions with,  in  1880,  63 

Westinghouse  Electric  Com- 
pany goes  into  bank- 
ruptcy m  panic  of   1907, 

Wheat,  its  high  price  in  1867, 
3;  increase  m  European 
production  of,  4;  world's 
crops  in  1875  and  1878,  5; 
decline  in  price  of,  ^; 
failure  of  crop  of  1879,  m 
England,  54,  55;  on  the 
European    continent,    55; 


4i8 


Index 


Wheat — Continued 

large  crop  of,  in  U.  S.,  56; 
enormous  exports  of,  from 
U.  S.  in  1879,  56;  pro- 
fitable harvest  of,  in  1880, 
59;  wild  speculation  in, 
60;  deficient  crop  of,  in 
1 88 1,  84;  high  price  of, 
84;  large  foreign  pro- 
duction of,  in  1883,  86; 
fall  in  price  of,  86;  world's 
heavy  crop  of,  in  1884, 10 1 ; 
low  prices  for,  102;  corner 
in,  during  1888,  115;  great 
depression  in,  during  1885, 
117;  large  exports  of,  from 
India  and  Argentina,  122; 
world's  short  supply  of,  in 
1880  and  1890,  156;  failure 
of  Argentine  crop  of,  157; 
failure  of  European  crop 
of,  ini89i,  163,  164;  enor- 
mous American  crop  of, 
163;  large  exports  of,  164; 
rise  in  price  of,  during  1891, 
165;  crop  of,  underesti- 
mated by  U.  S.  govern- 
ment, 165;  world's  enor- 
mous production  of,  in 
1894,  221;  extreme  decline 
in  price  of ,  222 ;  speculation 
in,  during  1895,  245;  bad 
effect  of  speculation  in, 
246;  large  crop  of,  in  1897, 
253;  -doubted  in  1904 
whether  the  U.  S.  can  re- 
main a  large  exporter,  261 ; 


its  low  price  of  1896,  262, 
264;  failure  of  Indian  crop, 
265;  sudden  rise  in  price, 
265;  political  effect,  266; 
failure  of  1897  crops  in 
Europe,  270;  large  Ameri- 
can crop  and  high  prices, 
271;  heavy  export  of,  in 
1897,  271;  the  Leiter 
comer  of  1898  in,  280; 
great  world's  crop  in  1906, 

314 

White  Star  Line,  bought  by 
Shipping  Trust  in  1902, 
302 

Wilson  Tariff  Act,  see  Tariff. 

Windom,  William,  Secretary 
of  U.  S.  Treasury,  under 
Garfield,  140;  under  Harri- 
sion,  140;  his  limitations 
as  a  financier,    140;  pro- 

Eoses  the  ^  Silver-Purchase 
aw,  142  ;|iis  motives,  141, 
142 ;  nature  of  his  plan,  142, 
143;  his  confused  views  on 
currency  questions,  144- 
145,  146;  ."defends  Silver- 
Purchase  Law,  154 

Wisconsin,  its  Congressmen 
vote  solidly  for  Bland  Sil- 
ver Bill,  40;  carried  by 
Republicans  in  1880  and 
1881,  90 

Witte,  Ser^ius,  Russian  fi- 
nance minister  in  1904, 
predicts  financial  collapse 
of  Japan,  321 


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